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Annual report2017

ContentsChairman’s report 2

Managing Director’s report 5

Directors’ responsibility statement 8

Consolidated Income Statement 9

Consolidated Statement of Comprehensive Income 10

Consolidated Statement of Changes in Equity 11

Consolidated Statement of Financial Position 12

Consolidated Statement of Cash Flows 13

Notes to the Consolidated Financial Statements 15 to 45

Auditor’s report 46

Directory 47

01

Chairman’sreport

It was with pleasure that I accepted the position of Chairman in December 2016 and actively returned to Fulton Hogan, which has been such a significant part of my working career.For the fifth consecutive year our people have again delivered a strong result – posting another year-on-year improvement on our financial performance.

In 2017 the Group recorded revenue of $3.6 billion and delivered a net profit after tax (NPAT) of $179.6 million – up 6.5% on last year’s NPAT of $168.7million.

This year all business streams’ financial results met or exceeded budget . From Australian Construction, who further grew its share of the telecommunications sectors, to our New Zealand operations that have been a significant contributor to the ongoing rebuild of the earthquake-damaged infrastructure in and around Kaikoura, to Australian Industries that continued its growth through their hub and spoke strategy, and our land business that provided to the market developed sections for future housing needs in Auckland and Christchurch.

Sadly, our pleasing financial performance has been overshadowed by the death of Selwyn Rewa, a valued employee of our Northland team who was killed while working under live traffic conditions on State Highway 15, Whangarei. His needless death is a reminder of the high-risk environment many of our people work in each day and how we as a Company rely on the compliance and safe transit of road users as they travel through our many active worksites throughout New Zealand, Australia and Fiji.

Land investment We have made further substantial purchases, and commitments to purchase land, for future development in Auckland. This land will come to the market over the coming years as planning and infrastructure issues are resolved.

We also invested in land for quarrying purposes in New Zealand to ensure a long-term supply of quarry products to support our vertically integrated business model.

ShareholdingThere was little change in our shareholding during the year with the Fulton and Hogan families holding 57.2%, current staff 5.4% and others at 37.4%.

Our target for 2018 is to release our new staff shareholding scheme for Australian employees. This will allow Australian staff to be issued shares in Fulton Hogan Australia, which are linked to the share price and dividend structure of Fulton Hogan Limited shares. Australian employees can then claim the tax credits paid by the Group; improving the attractiveness of the scheme. Only staff that are offered new shares will be able to participate in this revised scheme.

DividendsAs a Board we remain committed to making sure our dividend payments to shareholders reflects the success of Fulton Hogan. As such, an interim dividend of 24 cents per share was paid in March 2017. This, together with the final 2017 dividend of 40 cents declared by the Board of Directors and to be paid on 12 October, makes the total 64 cents per share for the year (2016: 62 cents).

Directors’ interests – general Directors have declared interests in the following transactions with the Company during the year:

• Work for and purchased products from Brake & Transmission, AB Equipment and Contract Resources Ltd, of which S J Smith was a Director during the year.

• Purchased services from Harmos Horton Lusk Ltd, of which G B Horton is a Director.

• Purchased services form SRG Ltd, of which P J Brecht is a Director

• Work for and purchased products from Port Otago Ltd and Gough Group, of which D J Faulkner is a Director.

• Work for and purchased products from Orion New Zealand Limited, Rangi Ruru High School and Southbase Construction, of which N D Miller is a Director.

• Work for and purchased products from Marlborough Airport, of which R W Olliver is a Director

• Purchased services from BDO Wellington Ltd, of which R H Farrant is a Director

Directors’ share dealingsDuring the year the following Directors acquired or disposed of relevant interests in equity securities issued by the Company.

Director No. of Shares Acquired (Disposed)

Consideration Paid/ Received $ per Share

Date of Acquisition or Disposal

P J Brecht 5,000 $11.30 06.12.16

R J Fulton 6,000 $11.30 26.10.16

M J Holloway 5,000 $11.30 06.12.16

G B Horton 5,647 $11.30 06.12.16

N D Miller 22,440 $ 11.30 20.9.16

11,000 $11.30 26.10.16

88,495 $ 11.30 07.04.17

02

Directors’ remuneration Director 2017 ($) 2016 ($)

P J Brecht 127,625 105,000

R H Farrant 127,625 122,000

D J Faulkner 143,501 0

R J Fulton 825,004 790,000

M J Holloway 179,375 210,000

G B Horton 127,625 122,000

W H Johnstone 107,625 105,000

N D Miller 2,862,350 1,391,182

R J Olliver 49,844 0

S J Smith 151,393 147,700

Board committeesThe Board has three formally constituted committees; the Remuneration and Succession Committee, the Audit and Risk Committee, the Land Development Committee.

The Remuneration and Succession Committee comprises Non-Executive Directors and is responsible for overseeing senior management succession planning, and reviewing and approving the performance and compensation arrangements for the Managing Director and the compensation of senior management. The Committee met two times during the year.

The Audit and Risk Committee comprises Non-Executive Directors with senior management ordinarily in attendance is responsible for overseeing the financial accounting and audit activities of the Group, including reviewing the adequacy and effectiveness of internal controls. The Committee met five times during the year.

The Land Development Committee, established to assist as required to overview the Group’s Land Development activities from a governance perspective, met twice during the year.

Remuneration of employeesRange ($)

No. of employees

2017 2016

100000-110000 444 428

110001-120000 402 330

120001-130000 280 219

130001-140000 204 170

140001-150000 196 128

150001-160000 138 94

160001-170000 110 78

170001-180000 100 64

180001-190000 82 51

190001-200000 70 46

200001-210000 50 31

210001-220000 37 32

220001-230000 30 25

230001-240000 24 23

240001-250000 28 25

250001-260000 26 20

260001-270000 17 11

270001-280000 17 15

280001-290000 18 12

290001-300000 19 10

300001-310000 8 7

310001-320000 9 5

320001-330000 14 7

330001-340000 5 6

340001-350000 8 4

350001-360000 8 3

360001-370000 4 3

370001-380000 3 3

380001-390000 5 4

390001-400000 6 2

400001-410000 3 1

Range ($)

No. of employees

2017 2016

410001-420000 6 2

420001-430000 2 3

430001-440000 3 1

440001-450000 3 2

450001-460000 4 4

460001-470000 2 -

470001-480000 2 2

480001-490000 5 1

490001-500000 - 1

500001-510000 2 2

510001-520000 1 1

520001-530000 3 -

530001-540000 - 1

540001-550000 1 1

560001-570000 2

570001-580000 - 1

580001-590000 1 -

600001-610000 1 -

620001-630000 1

660001-670000 1 -

670001-680000 1 -

680001-690000 1 -

720001-730000 - 1

810001-820000 - 1

860001-870000 1

870001-880000 1

900001-910000 - 1

940001-950000 - 1

1010001-1020000 1 -

1510001-1520000 1 -

1830001-1840000 1 -

Total 2,411 1,884

03

PeopleAs I visit our different operations it has been great to see many familiar faces and those of the next generation stepping up as future leaders of our Company.

Our workforce continues to evolve and grow as we adopt new technologies and processes to lead us into the future. Our presence in Australia has significantly changed, growing from around 100 people in 2000, to 2657 today. With this growth it’s pleasing to see that we have retained much of our focus on our family-based culture and values that have held us in good stead for over 84 years.

The next generation of senior leadership has been recently appointed to work with Cos Bruyn who starts on 4 September 2017 as our new Group Chief Executive Officer, taking over from Nick Miller who has led our business for the past 7½ years. Cos joins us from Downer where he headed their New Zealand operations and previously had a 15 year history with Fulton Hogan across a broad range of management roles.

On behalf of the Board of Directors, I thank Nick for agreeing to stay on as Managing Director after March this year until Cos was able to join the Company. Nick originally joined the business as a project engineer in Timaru in 1993 before leaving in October 2000 and returning in September 2004. Under Nick’s leadership the Group has continued to grow significantly which he, and his team, have achieved in the midst of a mining downturn in Australia and an increasingly competitive environment across New Zealand and Australia. As the guardian of our Company, Nick has positioned it strongly for the future. We thank Nick, Dee and family for their contribution to Fulton Hogan and wish them all the best for the future.

DirectorsDuring the year we had a number of changes at the Board level. These included:

• As outlined in the Half Year Update, Mike Holloway resigned from the Board in December 2016 after chairing it for four years. Mike was a Director for 12 years in total, originally as a Shell representative and then later as an independent Director.

• Richard Olliver, who is based in Blenheim, joined the Board as an independent Director in February 2017. Richard has extensive experience in taxation, business development and investment banking.

• Graeme Tapp was appointed as Company Secretary in December 2016 following the retirement of Kevin Soper. Graeme has held a number of senior finance roles within the Company over the past 15 years and has over 30 years of finance experience.

• Steve Smith has signalled his intention to retire from the Board on 31 December 2017. Steve has been an active member of the Board for the past 12 years bringing a wealth of experience to our discussions. For the past 12 years Steve has also chaired the Audit and Risk Committee. We thank Steve for his dedicated service to Fulton Hogan and wish him well for the future.

• Rachel Farrant was appointed Chair of the Audit and Risk Committee in July taking over from Steve Smith.

• As part of the transition to Cos Bruyn, Nick Miller will step down from the Board at the October Board meeting, ahead of his departure in early November.

A review of Directors’ fees is recommended as per the Notice of Meeting to accommodate an increased weighting to Non-Executive Directors on the Board.

FutureThe dedicated efforts of our 7153 people have positioned the Group strongly for the future.

Our focus on innovation and technology will continue to keep Fulton Hogan at the forefront of new developments. We recognise that we cannot stand still and need to embrace change at every opportunity. We will do this by partnering with international companies to help lead change in our marketplaces. The work completed over the past five years in balancing our construction portfolio has helped de-risk the business and will help drive our continual growth.

Our enduring principle of ‘empowered business units adding to the whole’ remains core to how we do things at Fulton Hogan and will be a central theme in the years ahead. We’ll continue to have a clear focus on internal succession, as demonstrated by some of our key people appointments made during 2017 (as outlined in detail in the Managing Director’s review), to safeguard our culture and point of difference.

I’m confident, despite the increasing challenges within our industry, that Fulton Hogan is well positioned for the future through both its geographic and business diversity.

Chairman’s report (continued)

Dave Faulkner Chairman

04

Managing Director’s reportOur dedicated people have delivered another strong financial result for the Group.The Group has delivered five continuous years of financial improvement – an achievement all the team can be very proud of.

Safety We were again reminded of the fragility of life when Selwyn Rewa, a member of our Whangarei team, was tragically killed when he was struck by a truck whilst operating a tractor broom within a worksite under temporary traffic control. As a Company, and an industry, we need to continually take a lead role in educating our communities on the importance of safety and driver behaviour in and around worksites. The social media campaign launched by our Australian Industries business is one of the ways we are extending our safety discussions into the community.

This year we recorded a Total Recordable Injury Frequency Rate (TRIFR) of 5.3 for the Group, up on last year’s TRIFR of 4.8 by 10.4%. This overall result was disappointing, however, we remain resolute that our journey to Zero Harm will overcome this setback. The New Zealand Construction business achieved a significant step change on its journey to Zero Harm, recording a TRIFR of 3.2 – a 50.8% improvement on last year.

Our lead indicator reporting is now well embedded across the business and forms an integral part of our safety culture, leadership and behaviours. We have launched a sixth critical risk group called Wellbeing to enable us to focus on the physical and mental wellbeing of our people, in addition to the historical focus on safety within the workplace environment.

Financial highlightsAll five business streams met or exceeded our annual financial targets, with 8.4% year-on-year increase in net profit before tax (NPBT). Full year NPBT of $252.4 million was recorded on revenue of $3.7 billion – up 8.5% on last year’s (2016: $3.1 billion).

Reported Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) of $364.6 million, a 9.5% increase on last year, can be attributed to:

• Increase in hours worked across the business by 13.7% to 29.5 million hours, reflective of the ongoing growth.

• Australian Industries achieving budget on the back of strong asphalt demand particularly in Victoria and New South Wales, recovery of the South East Queensland market, contribution from recent acquisitions including Citywide North Melbourne Asphalt (Vic.), Venarchie (Tas.), and Lismore (NSW) and an increase in our asset management portfolio.

• Performance of our New Zealand regional business particularly in the ‘Golden L’ of Auckland, Waikato and the Bay of Plenty regions who benefited from strong economic growth and associated infrastructure spend, as well as the solid performance across our six Network Outcome Contracts (NOCs) and the Auckland Motorway Alliance.

• Our involvement in the Kaikoura earthquake rebuild, either through the North Canterbury Transport Infrastructure Recovery (NCTIR) alliance or associated maintenance contracts within the Nelson and Marlborough regions which are helping keep communities connected.

• The continued diversification of Australian Construction, with our National Broadband Network (NBN) business contributing strongly having grown its presence to four states, and the excellent performance of the King Georges Road Interchange upgrade project in Sydney.

• Strong performance from our NZ Major Projects with the successful completion of a number of projects and delivery of 132% of budget.

• Strong performance of our land developments with the completion of the Halswell development in Christchurch and on the back of increased section demand in the greater Auckland market.

• Excellent performance of our Associate Company portfolio delivering 129% of budget.

In particular Horokiwi and Blackhead Quarries and Allied and South East Asphalt (Vic.), all on the back of strong volumes and improved operational performance on our Fulton Hogan Hiways joint venture in Fiji.

The last five years have seen year-on-year improvement in profitability and equates to 13.2% compound annual growth rate which is in line with our strategic targets. Net profit after tax of $179.6 million results in earnings per share (eps) of 128 cents for 2017.

05

Funding and capital managementThe Group experienced strong cashflow during the year, generating $207.7 million of cash, which includes the investment in replenishing land stock.

Net debt grew from $275.1 million to $316.3 million, with $171 million invested during the year in future quarry reserves in New Zealand (Canterbury, Auckland and Waikato), acquisitions of Clarke Asphalt and Venarchie in line with our Australian hub and spoke strategy, as well as strategic land acquisitions in New South Wales to allow establishment of new asphalt plants on freehold sites.

At 30 June 2017, bank debt was $586.4 million and cash held was $271.7 million. The Group centrally manages its treasury function to ensure surplus cash is efficiently utilised to reduce debt and interest paid during the year, while holding sufficient funds to meet Australian road authorities’ prequalification requirements.

We continue to receive strong support from our banks; Westpac, Bank of Tokyo-Mitsubushi, ANZ and BNZ. During the year the Group refinanced $118 million of debt to take the average weighted duration from 3.7 years to 2.8 years. For the next two financial years $200 million of debt will be refinanced, increasing the average weighted duration.

In line with our Group Treasury Risk Management Strategy, the Group continues to take advantage of the current low interest rates and has hedged 39.8% of bank facilities.

At 30 June 2017, Net Debt to Net Debt plus Total Equity was 27% (2016: 26.5%), with available liquidity of $319.1 million. This comprises of cash of $271.7 million and undrawn committed facilities of $47.5 million and ensures we have sufficient liquidity and balance sheet strength to continue to take advantage of opportunities and manage risk.

Operational highlightsKey achievements for 2017 included:

• The conclusion of SCIRT after 5½ years of helping get Canterbury back on its feet and our involvement in the NCTIR alliance to repair the road and rail networks between Picton and Christchurch.

• The VicRoads South Western Maintenance Alliance who worked tirelessly over the second quarter of 2017 to clear the Great Ocean Road of over 120 landslides.

• Acquisition of Tuakau Sand in New Zealand to support our vertically integrated business model; and Venarchie, to give us a permanent presence in the asphalting market in Tasmania.

• Purchase of additional quarry land in Canterbury, Auckland, Waikato and Tylden (Vic.) to secure future aggregate reserves.

• The partnership with Heijmans to bring new technologies to our marketplaces such as Bikescout in Wellington.

• Working on 15 airport contracts in Australia during the year, that ranged from regional runway reseals to large international airport pavements.

• Placement of over 100,000 tonnes of an innovative asphalt product , EME2, for Queensland customers who had specific needs for heavily trafficked areas.

• Achieving preferred contractor status on the SH1 Northern Corridor project in Auckland to improve access for motorists in Auckland and the North Shore.

• Securing a further $400 million of works on the Level Crossing Removal programme and major road and bridge construction works in Victoria.

• Expansion of our NBN offering, to include new urban developments and microwave tower infrastructure, in addition to our existing hybrid coaxial fibre works.

• 739 residential sections settled across our land development in Auckland and Christchurch and continued demand for our commercial lots at the Pokeno development.

• Completion of two major projects in New South Wales – King Georges Road Interchange upgrade for WestConnex and Foxground and Berry Bypass for Roads and Maritime Services. The latter was completed nine months ahead of schedule.

• Keeping the communities of Queenstown connected through the completion of two significant regional projects – the Remarkables Access Road upgrade and the 2km Stage 1 Hawthorn Drive extension.

PeopleThe Great Place to Work Survey was completed for the second time across the whole business and the third time in the Australian business. With 76% of our workforce completing the survey, it was positive to see a 70% engagement score achieved, up slightly on last year. The regions have led staff engagement in their local business – growing managers’ competencies, recruiting people for the right fit, creating career pathways, sharing our strategy and celebrating success.

During the year we made significant progress in our succession planning, which led to the appointment of Graeme Johnson and Domenic De-Fazio as our New Zealand CEOs for Regional Business and Construction respectively. Graeme and Dom collectively have over 30 years’ experience in Fulton Hogan, and have taken over from Robert Jones who stepped down on 30 June 2017.

Managing Directors’ report (continued)

06

The resignation of Peter Kessler, CEO – Australian Construction, during the year led to a review of the Australian structure to cater for the gap created. Although we recognise the current structure has been highly successful in growing Fulton Hogan to be one of Australia’s preferred partners in both the Industries and Construction streams, we wanted to further build on our strengths through a ‘one Fulton Hogan Australia’ approach underpinned by strong governance, aligned strategy, culture and brand. As such, we have put in place a country-led organisational structure headed by Nick Marinelli, CEO – Australia and supported by two CEOs, one each for Industries and Construction. Effective 1 July 2017, Duncan Gibb was appointed to the position of CEO – Construction, while the CEO – Industries position remains vacant until Cos Bruyn has the opportunity to evaluate the structure and have input into the appointment.

Being part of the community‘Being in, part of, and caring for our communities’ is what makes Fulton Hogan a great place to work. It encourages our people to actively participate and support the communities in which we operate, not only by the infrastructure that brings people together, but by also pitching in to support local causes.

This year our people have again embedded themselves in our communities and forged strong relationships. Our national sponsorships continue to gain momentum, particularly our work with the Department of Conservation around the protection of the takahē. This year has been the most successful breeding season for this unique New Zealand bird and it’s pleasing to see it move down the endangered list.

Our Australian business has also supported a number of causes, with the Run Melbourne event having raised over $145,000 in the past three years, while our Fulton Hogan Flyers based in Brisbane

have raised over $115,000 over the past five years for charities.

From cooking meals at Ronald McDonald House, helping support workmates in need, through to building new schools and community facilities in Fiji, the generosity of our people is humbling.

Outlook2018 will continue to be a challenging market, in both New Zealand and Australia, due to increasing competition and difficulty in sourcing quality talent in locations where there is significant infrastructure spend.

Our forward order position is strong, with the Group securing 65.9% of next year’s revenue, up 60.5% on last year. Most notably, Australian Construction has 96% of next year’s work in hand and is now in a position to strategically select the projects that maximise value.

Across the Group we have a clear focus on our future direction, with well embedded targets set for the short, medium and longer term. There is also concerted focus on people development and bringing new technologies to our market to set us up to succeed for the long term.

After 7½ years as Managing Director of Fulton Hogan, I step down from the position on 4 September, but I will continue to provide transition support to Cos Bruyn, our incoming Group CEO, for a period. I thank our 7153 people, shareholders, and fellow Directors for your support, counsel and friendship over my tenure with the Company. I’ll leave Fulton Hogan in November with the confidence the Group is well positioned to grow and prosper.

Nick Miller Managing Director

07

Directors’responsibilitystatementThe Directors are pleased to present the Consolidated Financial Statements of Fulton Hogan Limited for the year ended 30 June 2017 on pages 9 to 45.

The Directors are responsible for the preparation, in accordance with New Zealand law and generally accepted accounting practice, of the Financial Statements of Fulton Hogan. The "Group" consists of Fulton Hogan Limited (the "Company"), its subsidiary companies, associate, joint operations and joint ventures.

The Directors consider that the Financial Statements of the Group have been prepared using accounting policies appropriate to the Group circumstances, consistently applied and supported by reasonable and prudent judgements and estimates, and that all applicable New Zealand Equivalents to International Financial Reporting Standards and International Financial Reporting Standards have been followed.

The Directors have responsibility for ensuring that proper accounting records have been kept which enable, with reasonable accuracy, the determination of the financial position of the Group and enable them to ensure that the Financial Statements comply with the Financial Markets Conduct Act 2013.

The Directors have responsibility for the maintenance of a system of internal control designed to provide reasonable assurance as to the integrity and reliability of financial reporting. The Directors consider that adequate steps have been taken to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

This Annual Report is dated 29 August 2017 and is signed in accordance with a resolution of the Directors made pursuant to section 211 of the Companies Act 1993.

For and on behalf of the Directors

David J Faulkner Nicholas D Miller Chairman of the Board Managing Director

08

Consolidated Income Statement for the year ended 30 June 201730 June 30 June

2017 2016

NZ$'000 NZ$'000

NOTE

2 Revenue 3,644,006 3,085,439

3 Other Gains and (Losses) 788 2,061

4 Share of Profits of Investments Accounted for using the Equity Method 7,309 5,480

3,652,103 3,092,980

5 Auditor's Remuneration 709 839

Bad Debts in Respect of Loans and Receivables 732 174

Changes in Inventories (2,073) (2,168)

Direct Expenses 1,958,447 1,657,159

Directors' Fees 1,015 812

Donations 749 511

6 Employee Benefits Expense 889,542 725,605

Energy Related Expenses 83,666 70,024

21 Impairment of Non-Current Assets 474 -

Operating Lease Expenses 48,742 40,656

Repairs and Maintenance 102,641 98,059

Other Expenses 202,821 168,436

3,287,465 2,760,107

EARNINGS BEFORE INTEREST, TAX, DEPRECIATION AND AMORTISATION (EBITDA)

364,638 332,873

21 Depreciation Expense 92,544 80,193

23 Amortisation Expense 6,010 5,468

EARNINGS BEFORE INTEREST AND TAX (EBIT) 266,084 247,212

Finance Income 3,208 2,868

7 Finance Costs (16,904) (17,361)

PROFIT BEFORE INCOME TAX EXPENSE 252,388 232,719

8 Income Tax Expense 72,739 63,995

PROFIT FOR THE YEAR 179,649 168,724

Financial statements

The Notes to the Financial Statements on pages 15 to 45 form part of these Financial Statements.

09

Consolidated Statement of Comprehensive Income for the year ended 30 June 201730 June 30 June

2017 2016

NZ$'000 NZ$'000

PROFIT FOR THE YEAR 179,649 168,724

OTHER COMPREHENSIVE INCOME

Items That Will Not Be Reclassified to Profit or Loss:

Revaluation of Land

Gain on Revaluation of Land - 405

- 405

Items That May Be Reclassified to Profit or Loss:

Cash Flow Hedges

Gain/(Loss) on Cash Flow Hedges 4,566 (770)

Income Tax Relating to Cash Flow Hedges (1,336) 217

3,230 (553)

Translation of Foreign Operations

Gain/(Loss) Arising from Translation of Foreign Operations 344 (26,402)

344 (26,402)

OTHER COMPREHENSIVE INCOME FOR THE YEAR 3,574 (26,550)

TOTAL COMPREHENSIVE INCOME FOR THE YEAR 183,223 142,174


10

Consolidated Statement of Changes in Equity for the year ended 30 June 2017Share

CapitalShare

Repurchase Reserve

Asset Revaluation

Reserve

Capital Reserve

Cash Flow Hedge

Reserve

Foreign Currency

Translation Reserve

Retained Earnings

Total

NZ$'000 NZ$'000 NZ$'000 NZ$'000 NZ$'000 NZ$'000 NZ$'000 NZ$'000

Balance at 1 July 2015 118,255 (404,398) 71,583 307,975 (5,664) (27,110) 625,185 685,826

Profit for the Year - - - - - - 168,724 168,724

Other Comprehensive Income for the Year - - 405 - (553) (26,402) - (26,550)

Total Comprehensive Income for the Year - - 405 - (553) (26,402) 168,724 142,174

Transfers - - (699) 839 - - (140) -

Dividends - - - - - - (73,699) (73,699)

Treasury Stock Movement (504) - - - - - - (504)

Instalment Shares 7,502 - - - - - - 7,502

Balance at 30 June 2016 125,253 (404,398) 71,289 308,814 (6,217) (53,512) 720,070 761,299

Balance at 1 July 2016 125,253 (404,398) 71,289 308,814 (6,217) (53,512) 720,070 761,299

Profit for the Year - - - - - - 179,649 179,649

Other Comprehensive Income for the Year - - - - 3,230 344 - 3,574

Total Comprehensive Income for the Year - - - - 3,230 344 179,649 183,223

Transfers - - - - - - - -

Dividends - - - - - - (89,332) (89,332)

Treasury Stock Movement 634 - - - - - - 634

Balance at 30 June 2017 125,887 (404,398) 71,289 308,814 (2,987) (53,168) 810,387 855,824


11


Consolidated Statement of Financial Position as at 30 June 20172017

NZ$’0002016

NZ$’000NOTE

EQUITY9 Share Capital 125,887 125,253

10 Reserves (80,450) (84,024)

11 Retained Earnings 810,387 720,070

TOTAL EQUITY 855,824 761,299

Represented By:

CURRENT ASSETSCash and Bank Balances 271,721 200,726

12 Trade and Other Receivables 582,610 383,684

14 Inventories 113,592 120,733

15 Land Held for Development and Sale 14,973 18,839

Prepayments and Other Assets 16,991 17,160

TOTAL CURRENT ASSETS 999,887 741,142

NON-CURRENT ASSETS4 Investments Accounted for using the Equity Method 28,627 25,123

16 Other Financial Assets 8,989 9,797

20 Investment Property 1,991 -

21 Property, Plant and Equipment 815,451 755,993

Forest Assets 4,891 4,827

22 Goodwill 140,976 140,583

23 Other Intangible Assets 12,560 10,631

14 Inventories 50,219 40,332

15 Land Held for Development and Sale 240,469 150,106


TOTAL NON-CURRENT ASSETS 1,305,882 1,139,778

TOTAL ASSETS 2,305,769 1,880,920

CURRENT LIABILITIES24 Trade and Other Payables 696,164 493,143

6 Employee Entitlements 92,720 74,462

25 Borrowings 2,976 1,188

8 Current Tax Payable 18,236 23,785

26 Other Financial Liabilities 2,867 4,132

27 Provisions 9,880 12,574

TOTAL CURRENT LIABILITIES 822,843 609,284

NON-CURRENT LIABILITIES24 Trade and Other Payables 6,584 5,266

6 Employee Entitlements 5,743 5,395

25 Borrowings 585,027 474,640

8 Deferred Tax Liabilities 18,318 14,901

26 Other Financial Liabilities 595 3,895

27 Provisions 10,835 6,240

TOTAL NON-CURRENT LIABILITIES 627,102 510,337

TOTAL LIABILITIES 1,449,945 1,119,621

NET ASSETS 855,824 761,299

12


Consolidated Statement of Cash Flows for the year ended 30 June 20172017

NZ$’0002016

NZ$’000NOTE

CASH FLOWS FROM OPERATING ACTIVITIES

Cash was provided from:

Receipts from Customers 3,455,498 3,176,253

Interest Received 3,208 2,868

Dividends and Distributions Received 3,812 3,878

3,462,518 3,182,999

Cash was disbursed to:

Payments to Suppliers and Employees 3,158,605 2,793,306

Income Tax Paid 76,259 80,230

Interest Paid 19,979 23,871

3,254,843 2,897,407

NET CASH GENERATED BY / (USED IN) OPERATING ACTIVITIES 207,675 285,592

CASH FLOWS FROM INVESTING ACTIVITIESCash was provided from:

Proceeds from Sale of Property, Plant and Equipment 9,738 5,523

Proceeds from Loans Advanced to Subsidiaries 1 -

Staff Advances Repaid - 802

9,739 6,325

Cash was applied to:

Purchase of Forestry Assets - 434

Purchase of Property Plant and Equipment 160,725 121,296

Purchase of Other Intangible Assets 7,826 16,292

Purchase of Investment Property 1,991 -

Purchase of Shares in Subsidiary Company - 2,100

Loan Advances to Associate and Joint Ventures - 184

Net Advances to Staff 442 -

170,984 140,306

NET CASH GENERATED BY / (USED IN) INVESTING ACTIVITIES (161,245) (133,981)

CASH FLOWS FROM FINANCING ACTIVITIESCash was provided from:

Proceeds from Debt Issued 112,164 55,504

Proceeds from Related Parties 1,249 -

Proceeds from Shares Issued - 7,502

Proceeds from Treasury Stock 634 -

114,047 63,006

Cash was applied to:

Repurchase Treasury Stock - 504

11 Dividends Paid 89,332 73,699

Repayment of Debt 643 17,55689,975 91,759

NET CASH GENERATED BY / (USED IN) FINANCING ACTIVITIES 24,072 (28,753)

NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS 70,502 122,858

Cash and Cash Equivalents at the Beginning of the Year 200,726 82,967

Effect of Exchange Rate Changes on Cash Held in Foreign Currencies 493 (5,099)

CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 271,721 200,726

REPRESENTED BY CASH AND BANK BALANCES 271,721 200,726

13


COMPANY

2017NZ$’000

2016NZ$’000

NET CASH GENERATED BY OPERATING ACTIVITIES

Reconciliation of Profit for the Year to Net Cash Generated By Operating Activities:

Profit for the Year 179,649 168,724

Amortisation Expense 6,010 5,468

Bad Debts in Respect of Loans and Receivables 1,140 174

Change in Fair Value of Forest Assets (64) (1,510)

Deferred Tax 2,079 (1,904)

Depreciation Expense 92,552 80,193

Net Foreign Exchange (Losses) 271 (281)

Foreign Currency Movements in Working Capital (20) (330)

Impairment of Non-Current Assets 474 -

Loss (Gain) on Disposal of Non-Current Assets (995) (270)

Share of Profits from Entities Accounted for using the Equity Method (7,309) (5,480)

Net Distributions from Entities Accounted for using the Equity Method 3,807 3,870

Changes in Net Assets and Liabilities:

Trade and Other Receivables (199,954) (27,349)

Inventories 225 (8,604)

Land Held for Development and Sale (89,421) (20,345)

Other Current Assets 863 (6,601)

Trade and Other Payables 203,617 98,010

Current Tax (5,599) (14,043)

Employee Entitlements 18,491 11,068

Provisions 1,859 4,802

NET CASH GENERATED BY OPERATING ACTIVITIES 207,675 285,592

For the purposes of the Statement of Cash Flows, cash and cash equivalents include cash and bank balances and investments in money market instruments,

net of outstanding bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the Statement of Financial Position.

The following terms are used in the Statement of Cash Flows:

Operating activities are the principal revenue producing activities of the Group and other activities that are not investing or financing activities.

Investing activities are the acquisition and disposal of long-term assets and other investments not included in cash equivalents.

Financing activities are activities that result in changes in the size and composition of the contributed equity and borrowings of the Group.

Consolidated Statement of Cash Flows for the year ended 30 June 2017 (continued)

14

Notes to the Consolidated Financial Statements for the year ended 30 June 2017

1. SUMMARY OF ACCOUNTING POLICIES

Statement of Compliance

Fulton Hogan Limited (the Company) is a for-profit company incorporated in New Zealand and registered under the Companies Act 1993. The ‘Group’ consists of Fulton Hogan Limited, its subsidiary companies, associate, joint operations and joint ventures. The principal activities of the Group are the completion of infrastructure construction, surfacing and maintenance contracts and land development for residential subdivisions. The Company is a reporting entity for the purposes of the Financial Markets Conduct Act 2013 and its Financial Statements comply with that Act.

Basis of Financial Statement Preparation

The Financial Statements have been prepared:

▪ in accordance with Generally Accepted Accounting Practice and they comply with the New Zealand equivalents to International Financial Reporting Standards (NZ IFRS), International Financial Reporting Standards (IFRS) and other applicable financial reporting standards as appropriate for a Tier 1 for-profit entity;

▪ in accordance with accounting policies that are consistent with those applied in the previous year; ▪ on the basis of historical cost, except for certain assets and financial instruments that are measured at revalued amounts or fair values; and ▪ in New Zealand dollars with all values rounded to the nearest thousand dollars.

Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date.

For financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable. The levels are described as follows:

▪ Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; ▪ Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and ▪ Level 3 inputs are unobservable inputs for the asset or liability.

Key Judgements and Estimates

In the process of applying the Group’s accounting policies, the Group has made a number of judgements and estimates. The estimates and underlying assumptions are based on historical experience and various other factors that are considered to be appropriate under the circumstances. Actual results may differ from these estimates.

The following judgements and estimates are considered material to understanding the performance of Fulton Hogan Group:

Revenues and expenses are recognised in net profit by reference to the stage of completion of each identifiable component for construction contracts. A fundamental condition for being able to estimate profit recognition based on percentage of completion is that project revenues and project costs can be reliably estimated.

This reliability is based on such factors as compliance with the Group’s system for project control and that project management has the necessary skills. Project control also includes a number of estimates and assessments that depend on the experience and knowledge of project management in respect of project control, industrial relations, training and the prior management of similar projects. In determining revenues and expenses for construction contracts, management make key assumptions regarding estimated revenues and expenses over the life of the contract based on the best available information to the Group at the time. Where variations are recognised in revenue, assumptions are made regarding the probability that customers will approve variations and the amount of revenue arising from variations. In respect of costs, key assumptions regarding costs to complete contracts may include estimates of labour, technical costs, impact of delays, number of wet weather days and productivity.

Changes in these estimation methods could have a material impact on the Financial Statements of the Group (Notes 13 Construction Contracts and 24 Trade and Other Payables).

The fair value of land held for development and sale as stated in the accounting policy in Note 15. The fair value of derivative financial instruments as stated in Note 1(d).

The assumptions used in the estimation of the recoverable amount of cash-generating units and the carrying amount of Goodwill are discussed in Note 22.

The carrying value and useful life of Property, Plant and Equipment are determined in accordance with the accounting policy for Property, Plant and Equipment in Note 21.

The carrying value of Provisions is determined in accordance with the accounting policy in Note 27.

15

Notes to the Consolidated Financial Statements for the year ended 30 June 2017 (continued)

Summary of Significant Accounting Policies

The following significant accounting policies have been adopted in the preparation and presentation of the Financial Statements:

(a) Basis of ConsolidationThe Group Financial Statements incorporate the Financial Statements of the Company and its subsidiaries (being entities controlled by the Company as listed in Note 17), and the equity accounted results, assets and liabilities of the associate entity and joint ventures as listed in Note 4.

Control is achieved when the Group:

▪ has power over the investee;

▪ is exposed, or has rights, to variable returns from its involvement with the investee; and

▪ has the ability to use its power to affect its returns.

In preparing the Group Financial Statements, all material intragroup transactions, balances, incomes, expenses and cash flows have been eliminated.

Subsidiaries are consolidated on that date on which control is obtained to the date on which control is lost.

Investments in subsidiaries are recorded at cost less any impairment in the Company’s Financial Statements (Note 35).

(b) Business CombinationsAcquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition related costs are generally recognised in profit or loss as incurred.

At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value, except that:

▪ deferred tax assets or liabilities, and assets or liabilities related to employee benefit arrangements are recognised and measured in accordance with NZ IAS 12 Income Taxes and NZ IAS 19 Employee Benefits respectively;

▪ liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree are measured in accordance with NZ IFRS 2 Share-based Payments at the acquisition date; and

▪ assets (or disposal groups) that are classified as held for sale in accordance with NZ IFRS 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard.

Goodwill is measured as the excess of the sum of the consideration transferred and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred and the fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain.

When the consideration transferred by the Group in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the ‘measurement period’ (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.

The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or liability is remeasured at subsequent reporting dates in accordance with NZ IFRS 9 Financial Instruments or NZ IAS 37 Provisions, Contingent Liabilities and Contingent Assets, as appropriate, with the corresponding gain or loss being recognised in profit or loss.

(c) Goods and Services Tax / Value Added TaxRevenues, expenses, assets, liabilities and cash flows are recognised net of the amount of goods and services tax / value added tax (GST/VAT), except for receivables and payables which are recognised inclusive of GST/VAT. The GST/VAT component of cash flows arising from investing and financing activities which is recoverable from or payable to the taxation authority is classified as operating cash flows and shown net in the Statement of Cash Flows.

1. SUMMARY OF ACCOUNTING POLICIES (continued)

16


(d) Financial Assets and LiabilitiesFinancial assets and liabilities are classified into the following specified categories: financial assets ‘at fair value through profit or loss’ (FVTPL), and ‘measured at amortised cost’.

The classification depends on the business model for managing the financial asset and the cash flow characteristics of the financial asset and is determined at the time of initial recognition or when a change in the business model occurs.

Financial Assets at Fair Value through Profit or LossFinancial assets are classified at fair value through profit or loss if they are not measured at cost or amortised cost. Gains and losses on a financial asset designated in this category and not part of a hedging relationship are recognised in profit or loss.

Financial Assets Measured at Amortised CostThe Group’s financial assets held in order to collect contractual cash flows that are solely payments of principal and interest on the principal outstanding are measured at amortised cost. Cash and cash equivalents and trade receivables are classified in this category.

Retentions are determined in accordance with the conditions of each contract. Current retentions are measured at their nominal value and non-current retentions are measured as the present value of the expected future cash flows.

Financial Assets Measured at CostShares in subsidiary companies are measured at cost less any impairment in the Company’s Financial Statements (Note 35).

Financial Liabilities Measured at Amortised CostThe Group’s financial liabilities include trade and other payables and borrowings. These financial liabilities are initially recognised at fair value plus any directly attributable costs. Subsequent to initial recognition, they are measured at amortised cost using the effective interest method.

Impairment of Financial AssetsFinancial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the asset have been affected.

For financial assets carried at amortised cost, the amount of the impairment loss recognised is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.

For financial assets that are carried at cost, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses will not be reversed in subsequent periods.

Derivative Financial InstrumentsDerivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value with reference to observable market data at the end of each reporting period. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated as an effective hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. The Group designates certain derivatives as cash flow hedges.

A derivative is presented as a non-current asset or a non-current liability where the cash flow will occur after 12 months and it is not expected to be realised or settled within 12 months. Other derivatives are presented as current assets or current liabilities.

Hedge AccountingAt the inception of a hedge relationship, the Group documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument that is used in a hedging relationship is highly effective in offsetting changes in cash flows of the hedged item, attributable to the hedged risk.

Cash Flow HedgesThe effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income and accumulated as a separate component of equity in the hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss, and is included in ‘other gains and losses’.

Amounts recognised in the hedging reserve are reclassified from equity to profit or loss in the periods when the hedged item is recognised in profit or loss, in the same line as the recognised hedged item. Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. Any cumulative gain or loss deferred in the hedging reserve at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was deferred in the hedging reserve is recognised immediately in profit or loss.


17



(e) Impairment of AssetsAt the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

Recoverable amount is the higher of fair value less costs to sell and value-in-use. In assessing value-in-use, the estimated future pre-tax cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Goodwill is tested for impairment annually and whenever there is an indication that it may be impaired. An impairment of goodwill is not subsequently reversed.

(f) Foreign Currency

Foreign Currency TransactionsIn preparing the Financial Statements of individual entities, the transactions in currencies other than the entity’s functional currency are recorded at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are translated at the rates prevailing at that date.

Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences are recognised in profit or loss in the period in which they arise.

Foreign OperationsFor the purpose of presenting the Group’s Financial Statements, the assets and liabilities of the Group’s foreign operations are expressed in New Zealand dollars using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated as a separate component of equity in the Group’s foreign currency translation reserve. Such exchange differences are reclassified from equity to profit or loss (as a reclassification adjustment) in the period in which the foreign operation is disposed of.

(g) Accounting Policies relating to Specific Assets or LiabilitiesAccounting policies relating to other specific assets or liabilities are included within the following notes disclosing further information relating to that asset or liability.

(h) Change in Comparative InformationThe comparative financial information has been reclassified to ensure the classification of revenue, expenditure, assets and liabilities reflect the nature of the revenue and expenditure and the categorisation is consistent across the Group.

18


2. REVENUE

Construction Contracts

Revenue from a contract to provide services is recognised by reference to the stage of completion of the contract. The stage of completion of the contract at reporting date is assessed based on the value of services performed to date as a percentage of the total services to be performed.

Where the outcome of a construction contract can be estimated reliably, revenue and costs are recognised by reference to the stage of completion of the contract activity at the end of the reporting period, measured based on the proportion of contract costs incurred for work performed to date relative to the estimated total contract costs, except where this would not be representative of the stage of completion. Variations in contract work, claims and incentive payments are included to the extent that the amount can be measured reliably and its receipt is considered probable.

Where the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to the extent that the contract revenue is recoverable and meets the “probable” test. Contract costs are recognised as expenses in the period in which they are incurred.

When it is probable that contract costs will exceed contract revenue, the expected loss is recognised as an expense immediately.

Government Grants

Government grants relating to income are included in the Statement of Comprehensive Income and are deducted in reporting the related expense.

Sale of Goods

Revenue from the sale of goods is recognised when the Group has transferred to the buyer the significant risks and rewards of ownership of the goods, the amount of revenue and costs incurred can be measured reliably, management have effectively ceased involvement or control over the goods sold and it is probable that the economic benefits associated with the transaction will flow to the Group.

Revenue from the Sale of Land

Sale of land is recognised as revenue when the Group registers the transfer of title to the customer.

Dividends and Distributions

Dividend and distribution revenue from subsidiaries (Dividends from subsidiaries are eliminated in the Group accounts), other companies and entities is recognised when the Group’s right to receive payment has been established (Note 34).

2017 2016

NZ$'000 NZ$'000

Revenue from Construction, Surfacing and Maintenance Contract Services 3,504,061 2,951,891

Revenue from the Sale of Land 130,191 132,612

Revenue from Forestry 2,647 763

Revenue from Management Services 6,226 -

Revenue from Royalties 128 103

Insurance Recoveries 748 63

Dividends from Other Companies 5 7

3,644,006 3,085,439

3. OTHER GAINS AND LOSSES

2017 2016

NZ$'000 NZ$'000

Net Gain/(Loss) on Disposal of Property, Plant and Equipment 995 270

Net Foreign Exchange Gains/(Losses) (271) 281

Revaluation of Forest Assets 64 1,510

788 2,061

19


4. INVESTMENTS IN ASSOCIATE AND JOINT VENTURESAn associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.

The results and assets and liabilities of associate or joint ventures are incorporated in these consolidated Financial Statements using the equity method of accounting. Under the equity method, an associate or joint venture is initially recognised in the consolidated Statement of Financial Position at cost and adjusted thereafter to recognise the Group’s share of the profit or loss and other comprehensive income of the associate or joint venture. In assessing the Group’s share of the profit or loss or other comprehensive income of the associate or joint venture, the Group’s share of any unrealised profits or losses on transactions between Group companies and the associate or joint venture is eliminated. Dividends or distributions received from an associate or joint venture reduce the carrying amount of the investment in the associate or joint venture in the Group Financial Statements. When the Group’s share of losses of an associate or joint venture exceeds the Group’s interest in that associate or joint venture, the Group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate or joint venture.

An investment in an associate or joint venture is accounted for using the equity method from the date on which the investee becomes an associate or joint venture until the date it ceases to be an associate or joint venture.

On acquisition of the investment in an associate or joint venture, any excess of the cost of the investment over the Group’s share of the net fair value of the identifiable assets and liabilities of the investee is recognised as goodwill, which is included within the carrying value of the investment and tested annually for impairment. The requirements of NZ IAS 36 are applied to determine whether it is necessary to recognise any impairment loss.

Investments in an associate or joint venture are accounted for in the Company’s Financial Statements using the cost method and dividends or distributions received are recorded in profit or loss (Note 34 and 35).

2017 2016

NZ$'000 NZ$'000

Share of Profit for the Year and Total Comprehensive Income:

Associate Entity 271 420

Joint Ventures 7,038 5,060

7,309 5,480

Carrying Value at the End of the Year:

Associate Entity 134 75

Joint Ventures 28,493 25,048

28,627 25,123

20


4. INVESTMENTS IN ASSOCIATE AND JOINT VENTURES (continued)

ASSOCIATE ENTITY

Principal Activity Country of Incorporation

Balance Date Holding

2017 2016

Fulton Hogan Limited & Opus International Consultants Limited & TBS Farnsworth Limited Joint Venture

Civil Maintenance New Zealand 31 March 25% 25%

2017 2016

NZ$'000 NZ$'000

JOINT VENTURES

Share of Profit before Income Tax Expense 9,789 6,951

Share of Income Tax (2,751) (1,891)

Share of Net Profit for the Year and Total Comprehensive Income 7,038 5,060

Carrying Value at Beginning of the Year 25,048 25,209

Dividends from Joint Ventures (3,541) (3,438)

Disposal of Equity Interest in Coastline Markers Limited - (1,711)

Foreign Currency Exchange Rate Adjustment (52) (72)

Investment in Joint Ventures 28,493 25,048



2017 2016

Allied FH Limited Quarrying New Zealand 30 June 50% 50%

Allied Asphalt Limited Asphalt Production New Zealand 30 June 50% 50%

Blackhead Quarries Limited Quarrying New Zealand 30 June 50% 50%

Citywide North Melbourne Asphalt Pty Limited Trustee Company Australia 30 June 50% 50%

Fulton Hogan Egis O&M Pty Limited Maintenance Australia 30 June 50% 50%

Horokiwi Quarries Limited Quarrying New Zealand 30 June 50% 50%

Oamaru Shingle Supplies Limited Aggregate Production New Zealand 30 June 67% 67%

Rodney Aggregates Supplies Limited Quarrying New Zealand 30 June 50% 50%

South East Asphalt Pty Limited Asphalt Production Australia 30 June 50% 50%

The participants in each joint venture have equal voting rights.

5. AUDITOR’S REMUNERATION

2017 2016

NZ$’000 NZ$’000

Audit of the Financial Statements 569 567

Share Registry Audit 2016 and 2017 (PY: 2015) 11 6

Audit of the Financial Statements 2016 Additional Fees 29 -

Audit of Financial Statements FH Share of Joint Venture (Citywide, SCIRT, Huntly) 31 -

Audit of NSW Trust Account 2016 and 2017 19 -

Tax Training 1 -

Provision of Oracle HCM Fit Cap Assessment 30

Audit of the Financial Statements of Fijian Subsidiary by EY* 19 16

Review of Business Information Systems - 250

709 839

The auditor of the Group is Deloitte Limited.*The auditor of Fulton Hogan Investments (Fiji) Limited is Ernst and Young. The fee paid for the audit of those Financial Statements was $18,772 (2016: $15,600).

21


6. EMPLOYEE BENEFITS EXPENSE AND EMPLOYEE ENTITLEMENTSAn accrual is made for benefits due to employees in respect of wages and salaries, annual leave and long service leave when it is probable that settlement will be required and they are capable of being measured reliably.

Accruals made in respect of employee benefits expected to be settled within 12 months, are measured at their nominal values using the remuneration rate expected to apply at the time of settlement.

Provisions made in respect of employee benefits which are not expected to be settled within 12 months are measured at the present value of the estimated future cash flows to be made by the entities in respect of services provided by employees up to the reporting date.

Contributions to defined contribution plans are recognised as an expense when employees have rendered service entitling them to the contributions.

2017 2016

NZ$’000 NZ$’000

Employee Benefits Expense:

Post-Employment Benefits - Defined Contributions Plans 37,292 32,851

Salaries, Wages and Related Short-Term Benefits 849,065 690,943

Termination Payments 3,185 1,811

889,542 725,605

Employee Entitlements:

Current:

Employee Entitlements 74,783 58,239

Long Service Leave 17,937 16,223

92,720 74,462

Non-Current:

Long Service Leave 5,743 5,395

Total 98,463 79,857

7. FINANCE COSTSFinance costs consist of interest and other costs incurred in connection with the borrowing of funds. Interest expense is accrued on a time basis using the effective interest method.

Finance costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

All other finance costs are recognised in profit or loss in the period in which they are incurred.

2017 2016

NZ$’000 NZ$’000

Interest on Loans 16,408 16,173

Other Interest 122 224

Bank Facility Fees 3,449 4,298

Less Interest Capitalised (3,075) (3,334)

16,904 17,361

The capitalisation rates used to determine the interest capitalised are 4.70% - 5.16% (2016: 4.70% - 6.00%).

22


8. TAXATIONCurrent tax is the taxation expected to be paid to Taxation Authorities in respect of the current year.

Deferred taxation is recognised in respect of temporary differences between the tax bases of assets and liabilities and their carrying amounts in the Financial Statements. Future tax benefits are recognised where realisation of the asset is probable.

Current and deferred tax is calculated on the basis of the laws enacted or substantively enacted at balance date.

Income Tax

Current and deferred tax are recognised in the income statement, except when the tax relates to items charged or credited to other comprehensive income, in which case the tax is also recognised in other comprehensive income.

2017 2016

NZ$’000 NZ$’000

(a) Income Tax Recognised in Profit

Income Tax Expense Comprises:

Current Tax Expense 68,364 67,523

Adjustments Recognised in the Current Year in Relation to the Current Tax of Prior Years 2,283 (1,624)

Deferred Tax Expense Relating to the Origination and Reversal of Temporary Differences 2,092 (1,904)

Total Income Tax Expense Recognised in Profit 72,739 63,995

The prima facie income tax expense on pre-tax accounting profit reconciles to the income tax expense in the Financial Statements as follows:

Profit from Operations 252,388 232,719

Income Tax Expense calculated at 28% 70,669 65,161

Non-assessable Income (3,909) (2,503)

Non-deductible Expenses 2,095 1,088

Effect of 1% Fijian transitional tax on prior year profits 60 -

Effect of Different Tax Rates in Australia and Fiji 996 472

(Over)/Under Provision of Income Tax in Previous Year 2,828 (223)

72,739 63,995

The tax rate used in the above reconciliation is the corporate tax rate of 28% payable by New Zealand companies under New Zealand tax law.

(b) Current Tax Liability

Balance at Beginning of the Year 23,785 39,094

Taxation Expense 70,647 65,899

Foreign Currency Exchange Rate Adjustment 63 (892)

Arising on Acquisition of Business - (86)

Taxation Paid (76,259) (80,230)

Balance at End of the Year 18,236 23,785

Comprising:

Current Tax Payable 18,236 23,785

(c) Deferred Tax Balances

Net Deferred Tax Liabilities 18,318 14,901

23


8. TAXATION (continued)

(c) Deferred Tax Balances (continued)

Taxable and deductible temporary differences arise from the following:

Opening Balance

Charged to Profit or Loss

Charged to Other Comprehensive

Income

Foreign Currency Exchange Rate

Adjustment

Closing Balance

NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000

2017

Gross Deferred Tax Liabilities:

Trade and Other Receivables 18,926 7,017 - 15 25,958

Inventories 102 38 - - 140

Property, Plant & Equipment 20,192 448 - 45 20,685

Forest Assets 1,227 (105) - - 1,122

Investments 36 (37) - 1 -

Land Held for Development 4,531 (986) - - 3,545

45,014 6,375 - 61 51,450

Gross Deferred Tax Assets:

Trade and Other Payables 20,553 (10,453) - 83 10,183

Provisions 7,247 14,731 - (14) 21,964

Other Financial Liabilities 2,288 - (1,336) 3 955

Tax Losses 25 5 - - 30

30,113 4,283 (1,336) 72 33,132

Net Deferred Tax Liability (Asset) 14,901 2,092 1,336 (11) 18,318

2016

Gross Deferred Tax Liabilities:

Trade and Other Receivables 14,764 4,263 - (101) 18,926

Inventories 140 (26) - (12) 102

Property, Plant & Equipment 21,970 (40) - (1,738) 20,192

Forest Assets 804 423 - - 1,227

Investments 58 (17) - (5) 36

Land Held for Development 5,532 (1,001) - - 4,531

43,268 3,602 - (1,856) 45,014

Gross Deferred Tax Assets:

Trade and Other Payables 15,983 5,507 - (937) 20,553

Provisions 6,898 846 - (497) 7,247

Other Financial Liabilities 2,179 - 217 (108) 2,288

Tax Losses 925 (847) - (53) 25

25,985 5,506 217 (1,595) 30,113

Net Deferred Tax Liability (Asset) 17,283 (1,904) (217) (261) 14,901

2017 2016

(d) Imputation Credit Account Balance NZ$’000 NZ$’000


The Fulton Hogan consolidated tax group for income tax purposes includes Fulton Hogan Limited, Fulton Hogan Investment Limited, Fulton Hogan Land Development Limited, Fulton Hogan (Fiji) Limited, Fulton Hogan (Fiji) No. 2 Limited and Fulton Hogan Inc.

2017 2016

(e) Franking Credit Account Balance AUD$'000 AUD$'000

Franking Credit Account Balance - Fulton Hogan Limited 54,750 54,750

Franking Credit Account Balance - Fulton Hogan Australia Pty Limited Consolidated Tax Group 57,257 20,159


The Franking Credit Account Balance held by Fulton Hogan Limited is in respect of franking credits accumulated on dividends received from Australian subsidiaries.

24


9. SHARE CAPITAL

Classification as Debt or EquityDebt and equity instruments issued by the Company are classified as either equity or as financial liabilities (as disclosed in note 25 and 26) in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

Equity InstrumentsAn equity instrument is any contract that evidences a residual interest in the assets of any entity after deducting all of its liabilities. These are disclosed as ordinary capital or treasury stock.

Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

Shares repurchased by the Company which have not been cancelled are categorised as treasury stock within share capital.

2017 2016

Number Value Number Value

NZ$'000 NZ$'000

(a) Ordinary Share Capital

Balance at Beginning of the Year 141,233,686 152,057 138,348,585 130,314

Instalment Shares Reclassified - - 2,885,101 21,743

Balance at End of the Year 141,233,686 152,057 141,233,686 152,057

(b) Instalment Shares

Balance at Beginning of the Year - - 2,885,101 14,241

Instalment Received - - - 7,502

Reclassified to Ordinary Share Capital - - (2,885,101) (21,743)

Balance at End of the Year - - - -

(c) Treasury Stock

Balance at Beginning of the Year (1,688,461) (26,804) (1,643,463) (26,300)

Stock Acquired During the Year (590,253) (6,612) (516,133) (4,936)

Applied to Staff Issues During the Year 641,335 7,246 471,135 4,476

Staff Share Issue Costs - - - (44)

Balance at End of the Year (1,637,379) (26,170) (1,688,461) (26,804)

139,596,307 125,887 139,545,225 125,253

2017 2016

NZ$'000 NZ$'000

(d) Available Subscribed Capital

Balance at Beginning of the Year 21,283 -

Movement in Treasury Stock 634 (460)

Instalment Shares - 21,743


All ordinary shares are fully paid, have equal voting rights and share equally in dividends and net assets on winding up.

In accordance with the Companies Act 1993, the Company does not have a limited amount of authorised capital and issued shares do not have a par value.

The available subscribed capital represents the amount of the shareholders’ equity that is available to be returned to shareholders on a tax-free basis.

25


10. RESERVES

2017 2016

NZ$'000 NZ$'000

Asset Revaluation Reserve 71,288 71,289

Capital Reserve 308,814 308,814

Cash Flow Hedge Reserve (2,987) (6,217)

Foreign Currency Translation Reserve (53,167) (53,512)

Share Repurchase Reserve (404,398) (404,398)

(80,450) (84,024)

The movements in reserves are disclosed in the Statement of Changes in Equity.

(a) Asset RevaluationThe asset revaluation reserve arises on the revaluation of land used for operational purposes. On the subsequent sale or retirement of revalued land, the attributable revaluation surplus remaining in the asset revaluation reserve is transferred directly to retained earnings. No transfer is made from the revaluation reserve to retained earnings except when an asset is derecognised.

(b) Capital Reserve This represents reserves that are available to be distributed tax-free on winding up of the Company.

(c) Cash Flow Hedge ReserveThis represents hedging gains and losses recognised on the effective portion of cash flow hedges.

(d) Foreign Currency Translation ReserveExchange differences relating to the translation from the functional currencies of foreign controlled entities into New Zealand dollars are brought to account by entries made to other comprehensive income and accumulated in the foreign currency translation reserve.

(e) Share Repurchase ReserveThis represents the excess of the consideration payable for shares repurchased over the amount originally contributed.

26


11. RETAINED EARNINGS

2017 2016

NZ$’000 NZ$’000

Balance at Beginning of the Year

Fulton Hogan Limited 663,264 581,310

Fulton Hogan Limited – Set aside for Dividend 56,806 43,875

720,070 625,185

Add

Profit for the Year 179,649 168,724

Transfer from Asset Revaluation Reserve - 699

179,649 169,423

Deduct

Dividends Paid

- Final Dividend 2015 (31c per share) 55,800 42,940

- Interim Dividend 2016 (22c per share) 33,532 30,759

89,332 73,699

Transfer to Capital Reserve - 839

89,332 74,538

Balance at End of the Year

Fulton Hogan Limited 754,095 663,264

Fulton Hogan Limited – Set aside for Dividend 40c per share (Note 34) 56,292 56,806

810,387 720,070

The dividends set aside for distribution to shareholders shall be fully imputed.

12. TRADE AND OTHER RECEIVABLES

2017 2016

NZ$'000 NZ$'000

Trade Receivables 293,068 211,396

Owing by Associate and Joint Ventures 981 392

Retentions 18,320 15,336

Deposits 1,100 1,084

Amounts Due from Customers under Construction Contracts (Note 13) 269,141 155,476

582,610 383,684

Refer to Note 1(d) Financial Assets and Liabilities for accounting policy.

Included in Trade Receivables are debtors which are past due at balance date, as payment was not received within one month, and for which no provision has been made as there has not been a significant change in credit quality and the amounts are still considered recoverable. No collateral is held over these balances. Interest is not charged on overdue debtors. The ageing of these past due Trade Receivables is:

One Month 22,052 38,188

Two Months 6,805 19,923

More than Two Months 5,514 51,483

34,371 109,594

27


13. CONSTRUCTION CONTRACTS

2017 2016

NZ$’000 NZ$’000

Construction costs incurred plus recognised profits less recognised losses to date 4,734,935 4,003,160

Less: Progress Billings (4,661,735) (4,032,249)

73,200 (29,089)

Recognised and included in the Financial Statements as amounts due:

From Customers under Construction Contracts (Note 12) 269,141 155,476

To Customers under Construction Contracts (Note 24) (195,941) (184,566)

73,200 (29,090)

14. INVENTORIES Inventories are stated at the lower of cost and net realisable value. Cost means the actual cost of the inventory and in determining cost, the first in first out basis of stock movement is followed, with due allowance having been made for obsolescence. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale.

2017 2016

NZ$’000 NZ$’000

Stock - Raw Materials 64,743 64,921

Land Development Work in Progress 99,068 96,144

163,811 161,065

Current 113,592 120,733

Non-current (Land Development Work in Progress) 50,219 40,332

163,811 161,065

28


15. LAND HELD FOR DEVELOPMENT AND SALELand Held for Development and Sale is Land in the process of development for sale in the ordinary course of business and is not held to earn rentals or for capital appreciation. This land is carried at the lower of cost and net realisable value. Land intended to be sold within 12 months is disclosed as a current asset.

Deposits and advances paid toward the acquisition of Land Held for Development and Sale are disclosed within Land Held for Development and Sale.

2017 2016

NZ$'000 NZ$'000

Land Held for Development and Sale:

Current 14,973 18,839

Non-current 240,469 150,106

255,442 168,945

Non-current Land Held for Development and Sale includes $133.2 million (2016: $41.1 million) of deposits and advances paid in respect of land acquisitions not yet settled and title has not been received.

ValuationLand Held for Development and Sale is carried at the lower of the acquisition cost to the Group and net realisable value where there has been an impairment in value. The carrying value therefore does not include the valuation premium disclosed below.

The net realisable value of properties held at 30 June 2017 is determined by Independent Registered Valuer, Mr P Menon B.Com VPN MPINZ of Crighton Anderson Property & Infrastructure Limited in a report dated 10 August 2017.

The valuations completed each year are Level 3 in the fair value hierarchy. The valuation is based on the discounted cash flow of future land sales using market based data for land values in the regions where the Group’s development land is held.

2017 2016

NZ$’000 NZ$’000

Land Held for Development and Sale 255,442 168,945

Land Development Work in Progress (Note 14) 99,068 96,144

Carrying Value 354,510 265,089

Deferred Payments on Acquisitions included in the valuations (Note 28) 160,878 82,069

515,388 347,158

As per Valuation Methodology above 520,000 528,875

Recent Acquisitions and Deposits and Advances Paid on Future Acquisitions (at cost) 118,466 -

638,466 528,875

16. OTHER FINANCIAL ASSETS

2017 2016

NZ$’000 NZ$’000

At fair value:

Shares in Other Companies 8 8

At amortised cost:

Bank Deposit 81 83

Employee loans (Note 19) 7,426 6,983

Loans Advanced to:

Associate and Joint Ventures 1,474 2,723

8,989 9,797

Loans to Associate, Joint Ventures and Subsidiary Companies (Note 35) are repayable on demand, although repayment is not expected within one year. The interest rates are in the range 4.5% - 4.75% (2016: 4.50% - 4.75%).

Included in Employee Loans are loans to Key Management Personnel of the Company of $104 (2016: $4,500) made under the Employee Share Purchase Scheme. Repayments are made in accordance with the Employee Share Purchase Scheme (refer Note 19).

29


17. SHARES IN SUBSIDIARY COMPANIESThe consolidated Financial Statements incorporate the following subsidiary companies :



2017 2016

Abernethy Civil Limited Not Trading New Zealand 30 June 100% 100%

Coastline Markers Limited Road Marking New Zealand 30 June 100% 100%

Fulton Hogan Australia Pty Limited Holding Company Australia 30 June 100% 100%

Fulton Hogan Construction Pty Limited Contracting Australia 30 June 100% 100%

Fulton Hogan (Fiji) Limited Holding Company New Zealand 30 June 100% 100%

Fulton Hogan (Fiji) No. 2 Limited Holding Company New Zealand 30 June 100% 100%

Fulton Hogan Inc. Contracting American Samoa 30 June 100% 100%

Fulton Hogan Industries Pty Limited Contracting Australia 30 June 100% 100%

Fulton Hogan Investment Limited Holding Company New Zealand 30 June 100% 100%

Fulton Hogan Investments (Fiji) Limited Holding Company Fiji 30 June 100% 100%

Fulton Hogan Land Development Limited Land Development New Zealand 30 June 100% 100%

Fulton Hogan Quarries Pty Limited Quarrying Australia 30 June 100% 100%

Fulton Hogan Timor UNIPESSOAL LDA Contracting Timor 30 June 100% 100%

Fulton Hogan Transport Pty Limited Specialised Tanker Transport

Australia 30 June 100% 100%

Pioneer Asphalts Holdings Limited(Deregistered 2017)

Not Trading Hong Kong 31 December 100% 100%

Pioneer Road Services (Overseas) Pty Limited Not Trading Australia 30 June 100% 100%

18. JOINT OPERATIONSA joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.

When a Group entity undertakes its activities under joint operations, the Group and Group entity as a joint operator recognises in relation to its interest in a joint operation:

▪ Its assets, including its share of any assets held jointly; ▪ Its liabilities, including its share of any liabilities incurred jointly; ▪ Its revenue, including its share of the revenue from the sale of the output by the joint operation; and ▪ Its expenses, including its share of any expenses incurred jointly.

The Group and Group entity account for the assets, liabilities, revenues and expenses relating to its interest in a joint operation in accordance with the applicable NZ IFRS.

When a Group entity transacts with a joint operation in which a Group entity is a joint operator (such as a sale or contribution of assets), the Group is considered to be conducting the transaction with the other parties to the joint operation, and gains or losses resulting from the transactions are recognised in the Group’s consolidated Financial Statements only to the extent of other parties’ interests in the joint operation.

When a Group entity transacts with a joint operation in which a Group entity is a joint operator (such as a purchase of assets), the Group does not recognise its share of the gains or losses until it resells those assets to a third party.

At reporting date the Group had the following interests in joint operations and the participants in each joint venture have equal voting rights:

30


Joint Operation/Joint Operation Partner Principal Activity and Country of Operation


2017 2016

Fulton Hogan Construction Pty Limited & Laing O'Rourke Australia Construction Pty Ltd trading as Bayswater Grade Separation

Road Construction Australia

30 June 50% 50%

Fulton Hogan Industries Pty Limited & Citywide Service Solutions Pty Limited trading as Citywide North Melbourne Asphalt Joint Venture

Asphalt Production Australia

30 June 50% 50%

Fulton Hogan Construction Pty Limited & Beca Pty Limited & Delplant Pty Limited trading as FHDB Joint Venture

Civil Construction Australia

30 June 52% 52%

Fulton Hogan Construction Pty Limited & Jaydo Construction Pty Limited trading as Capacity Joint Venture


30 June 50% 50%

Fulton Hogan Construction Pty Limited & Leighton Contractors Pty Limited trading as Leighton Fulton Hogan Joint Venture


30 June 50% 50%

Fulton Hogan Construction Pty Limited & McCosker Contracting Pty Limited trading as Fulton Hogan McCosker Joint Venture (Deregistered)


30 June 0% 75%

Fulton Hogan Construction Pty Limited & Abigroup Contractors Pty Limited & Seymour Whyte Pty Limited trading as D2G Joint Venture


30 June 22% 22%

Fulton Hogan Construction Pty Limited & Ecodynamics trading as Fulton Hogan Ecodynamics Joint Venture (MARLAC)

Maintenance Australia

30 June 80% 80%

Fulton Hogan Construction Pty Limited & Seymour Whyte Pty Limited trading as Fulton Hogan Seymour Whyte Joint Venture


30 June 50% 0%

Fulton Hogan Construction Pty Limited & Laing O’Rourke Australia Construction Pty Limited trading as Level Crossing Removal Project: North Eastern Program Alliance (NEPA)


30 June 50% 0%

Fulton Hogan Construction Pty Limited & York Civil Constructions Pty Limited trading as Nexy Joint Venture


30 June 75% 75%

Fulton Hogan Construction Pty Limited & Laing O'Rourke Australia trading as Gateway South Joint Venture


30 June 50% 50%

Fulton Hogan Limited & HEB Construction Limited trading as Tauranga Eastern Link Joint Venture

Road Construction New Zealand

30 June 65% 65%

Fulton Hogan Limited & HEB Construction Limited trading as Waikato Expressway - Huntly Section Joint Venture


30 June 65% 65%

Fulton Hogan Investments (Fiji) Limited & Hiway Stabilizers Fiji Limited trading as Fulton Hogan Hiways Joint Venture

Road Construction and Maintenance Fiji

30 June 75% 75%

Fulton Hogan Limited & John Holland (NZ) Limited trading as Fulton Hogan John Holland Joint Venture - Irrigation

Canal Construction New Zealand

30 June 50% 50%

Fulton Hogan Limited & John Holland (NZ) Limited trading as Fulton Hogan John Holland Joint Venture - Rail

Rail Construction and Maintenance

30 June 50% 50%

Fulton Hogan Limited & John Holland (NZ) Limited trading as Fulton Hogan John Holland Joint Venture - Water

Pipe Construction New Zealand

30 June 57.5% 57.5%

Fulton Hogan Limited & John Holland (NZ) Limited trading as Fulton Hogan John Holland Joint Venture - Hunua

Pipe Construction New Zealand

30 June 57.5% 57.5%

Fulton Hogan Limited and Opus International Consultants Limited trading as Capital Journey's Joint Venture

Maintenance New Zealand

30 June 75% 75%

Fulton Hogan Limited and Leighton Contractors Pty Limited trading as Leighton Fulton Hogan Joint Venture (SH16 Causeway Upgrade)


30 June 50% 50%

Fulton Hogan Limited, Opus International Consultants Limited, Beca Infrastructure Limited & Resolve Group Limited trading as Auckland Motorway Alliance


30 June 78% 78%

Northern Gateway Alliance Road & Bridge Construction New Zealand

30 June 40% 40%

31


Joint Operation/Joint Operation Partner Principal Activity and Country of Operation


2017 2016

Fulton Hogan Limited, Downer New Zealand Limited, City Care Limited, Fletcher Construction Company Limited, McConnell Dowell Constructors Limited, trading as Stronger Christchurch Infrastructure Rebuild Team (SCIRT)

Road Construction & Maintenance New Zealand

30 June 20% 20%

Fulton Hogan Limited, Aurecon New Zealand Limited, Jacobs New Zealand Limited trading as Christchurch Northern Corridor Alliance


30 June 100% 0%

Fulton Hogan Limited, Downer New Zealand Limited, HEB Construction Limited, Higgins Contractors Limited, NZ Transport Agency, KiwiRail Holdings Limited trading as North Canterbury Transport Infrastructure Recovery Project Alliance (NCTIR)


30 June 25% 0%

Fulton Hogan Land Development Limited, Dannemora Holdings Limited & Wayne Francis Charitable Trust Joint Venture

Land DevelopmentNew Zealand

30 June 50% 50%

Fulton Hogan Land Development Limited & Dines Property Development Limited Joint Venture

Land DevelopmentNew Zealand

30 June 50% 50%

Helenslee Investments Limited Land DevelopmentNew Zealand

30 June 50% 50%

Pokeno Village Holdings Limited Trustee CompanyNew Zealand

30 June 50% 50%

Pokeno Water Limited Land DevelopmentNew Zealand

30 June 50% 50%

WFH Properties Limited Trustee CompanyNew Zealand

30 June 50% 50%

WFH Properties No 2 Limited Land DevelopmentNew Zealand

30 June 50% 50%

32


19. EMPLOYEE SHARE PURCHASE SCHEMEFulton Hogan Limited operates an Employee Share Purchase Scheme for the benefit of employees and the Group. Each year the Directors may, at their discretion, allot a number of life shares to employees on the recommendation of Management and in accordance with the Constitution. The fully paid life shares are issued to employees either for cash consideration or by way of non-interest bearing employee loan. The Directors establish the price at which the shares are issued. Repayment of employee loans is by payroll deduction and dividends received over a maximum of four years.

20. INVESTMENT PROPERTYInvestment property, which is property held to earn rentals and/or for capital appreciation, is stated at cost less accumulated depreciation and accumulated impairment. Cost includes expenditure that is directly attributable to the acquisition of the item. The rate of depreciation is 2%.

2017 2016

NZ$'000 NZ$'000

Investment Property 1,991 -

21. PROPERTY, PLANT AND EQUIPMENTLand is included in the Statement of Financial Position at its revalued amount, being the fair value at the date of revaluation, less any subsequent accumulated impairment losses. Fair value is determined on the basis of an independent market valuation prepared by external valuation experts. The fair value is recognised in the Financial Statements, and is reviewed at the end of each reporting period to ensure that the carrying value of land is not materially different from fair value.

Any revaluation increase arising on the revaluation of such land is recognised in other comprehensive income and accumulated as a separate component of equity in the asset revaluation reserve, except to the extent that it reverses a revaluation decrease for the same asset previously recognised in profit or loss, in which case the increase is credited to profit or loss to the extent of the decrease previously charged. A decrease in the carrying amount arising on the revaluation of such land is charged to profit or loss to the extent that it exceeds the balance, if any, held in the asset revaluation reserve relating to a previous revaluation of that asset.

On the subsequent sale or retirement of revalued land, the attributable revaluation surplus remaining in the asset revaluation reserve is transferred directly to retained earnings.

Land and capital work in progress is not depreciated. Buildings and leasehold improvements, plant, equipment and quarry reserves are stated at cost less accumulated depreciation and accumulated impairment. Cost includes expenditure that is directly attributable to the acquisition of the item.

Depreciation is charged on either a straight-line or diminishing value basis so as to write-off the cost or valuation of assets over their useful lives. The estimated useful lives, residual values and depreciation methods are reviewed at the end of each annual reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

The following estimated useful lives are used in the calculation of depreciation:

Buildings and leasehold improvements 28 to 40 years

Plant and Equipment 5 to 25 years

Quarry Reserves Units of production (current year resources quarried at consented site/total estimated quarry resources available per consented site)

The carrying amount for an item of property, plant and equipment is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

The gain or loss on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognised in profit or loss.

Grants from the governments are recognised at their fair value where there is reasonable assurance that the grant will be received and the Group will comply with the attached conditions. Government grants relating to the purchase of property, plant and equipment are deducted from the carrying amount of the asset, with the grant recognised in the profit or loss over the life of the depreciable asset as a reduced depreciation expense.

33


21. PROPERTY, PLANT AND EQUIPMENT (continued)

Land at fair value Buildings and Leasehold

Improvements at cost

Plant and Equipment at cost

Quarry Reserves at cost

Capital Work in Progress at cost

Total

NZ$'000 NZ$'000 NZ$'000 NZ$'000 NZ$'000 NZ$'000

Gross carrying amount

Balance 1 July 2015 159,577 105,864 1,050,891 51,649 39,999 1,407,980

Additions 16,544 11,835 108,311 11,399 (19,388) 128,701

Additions Through Business Acquisitions - 452 8,375 (34) 127 8,920

Disposals/Transfers (5,294) (2,364) (40,965) - (150) (48,773)

Foreign Currency Exchange Rate Adjustment (5,661) (3,265) (37,034) (3,598) (2,194) (51,752)

Balance 30 June 2016 165,166 112,522 1,089,578 59,416 18,394 1,445,076

Additions 20,283 10,425 103,337 8,983 17,648 160,676

Disposals/Transfers (1,901) (36,513) (10,998) (741) - (50,153)

Foreign Currency Exchange Rate Adjustment 73 290 218 52 - 633

Balance 30 June 2017 183,621 86,724 1,182,135 67,710 36,042 1,556,232

Accumulated depreciation, amortisation and impairment

Balance 1 July 2015 29 39,771 610,999 16,128 - 666,927

Depreciation Expense - 4,844 74,244 1,105 - 80,193

Additions Through Business Acquisitions - 166 4,640 (34) - 4,772

Disposals/Transfers - (4,052) (39,276) - - (43,328)

Impairment - - - - - -

Foreign Currency Exchange Rate Adjustment - (1,195) (17,376) (910) - (19,481)

Balance 30 June 2016 29 39,534 633,231 16,289 - 689,083

Depreciation Expense - 5,490 85,545 1,509 - 92,544

Disposals/Transfers - (12,001) (29,376) - - (41,378)

Impairment 474 - - - - 474

Foreign Currency Exchange Rate Adjustment - 56 (18) 19 - 58

Balance 30 June 2017 503 33,079 689,382 17,817 - 740,781

Net book value

As at 30 June 2016 165,137 72,988 456,347 43,127 18,394 755,993

As at 30 June 2017 183,118 53,645 492,753 49,893 36,042 815,451

34


21. PROPERTY, PLANT AND EQUIPMENT (continued)

Land Carried at Fair Value Land shown at valuation is valued at fair value in accordance with the Group’s accounting policy and was last valued as at 30 June 2015 by independent registered valuers, in NZ by Beca Valuations Limited ($92 million), and in Australia by Colliers International (AU $56 million). The valuations, which conform to Property Institute Practice Standards, were arrived at by reference to market evidence of transaction prices for similar properties.

The Group Land is classified as level 3 in the fair value hierarchy.

Further explanation of the fair value hierarchy is set out in the Summary of Accounting Policies under the heading Basis of Financial Statement Preparation.

2017 2016

NZ$'000 NZ$'000

The Carrying Amount of Land had it been Recognised Under the Cost Model is: 119,454 99,138

Revaluations and impairment review The Group’s land was revalued to fair value as at 30 June 2015. The Group’s buildings and leasehold improvements, plant, equipment and quarry reserves are carried at cost less accumulated depreciation and accumulated impairment. The Group does not consider that the carrying amount of the other property, plant and equipment is impaired at 30 June 2017.

22. GOODWILLGoodwill arising on the acquisition of a business is carried at cost as established at the date of acquisition of the business less accumulated impairment losses, if any.

For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (or groups of cash-generating units) that is expected to benefit from the synergies of the combination.

On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

Allocation of Goodwill to Cash-Generating UnitsGoodwill has been allocated for impairment testing purposes to the cash-generating units listed below which represent the lowest level at which management monitor goodwill.

2017 2016

NZ$’000 NZ$’000

New Zealand Contracting - Canterbury Region 4,409 4,409

New Zealand Contracting - Nelson Region 394 394

New Zealand Contracting - Projects 500 500

New Zealand Contracting - Road Marking 1,162 1,162

Australia - Surfacing & Infrastructure Services 94,804 94,526

Australia - Construction 32,247 32,153

Australia - Quarries 7,460 7,439

Group 140,976 140,583

There has been no impairment of goodwill during the current and prior financial year. The change in the Australia totals includes a foreign currency exchange gain of $0.4 million in 2017 (2016: loss of $11.4 million).

The recoverable amounts, that is, the higher of value-in-use and fair value less costs to sell, of those units are determined on the basis of value-in-use calculations.

Management has determined that the recoverable amount calculations are most sensitive to maintaining gross margins during a period of cost increases driven by movements in foreign currency and cost inflation pressures and the maintenance/replacement of major contracts during the forecast period.

The value-in-use calculations at 30 June 2017 use cash flow projections based on financial forecasts approved by Management covering a five year period. Annual growth rates reflect recent historical growth achieved adjusted where appropriate for the effect of the State and National infrastructure forecasts; EBITDA returns based on current annual returns adjusted for long-term expectations; capital expenditure based on five year capital replacement programmes; and pre-tax discount rates of between 9.37%-11.48% for each of the New Zealand cash-generating units and between 8.30%-10.56% for each of the Australian cash-generating units (2016: 13.4% for New Zealand cash-generating units and between 10.69%-12.65% for Australian cash-generating units) have been applied to these projections. Cash flows beyond the five year period have been extrapolated using a growth rate of 2.0% for the New Zealand cash-generating units and 2.5% for each of the Australian cash-generating units (2016: 2.0% and 2.5%). Management also believes that any reasonably probable change in the key assumptions would not cause the carrying amount of any of the cash-generating units to exceed their recoverable amount.

35


23. OTHER INTANGIBLE ASSETSOther intangible assets consists of:

Computer SoftwareAcquired computer software licenses are reported at cost less accumulated amortisation and accumulated impairment losses. These assets are amortised, on a diminishing value basis, over their estimated useful lives. This period does not exceed 5 years.

Resource ConsentsAcquired resource consents are reported at cost less accumulated amortisation and accumulated impairment losses. These assets are amortised over the period of the resource consents which range from 13 to 15 years.

Non-Compete AgreementNon-compete agreement is reported at cost less accumulated amortisation and accumulated impairment losses. These costs are amortised, on a straight-line basis over the five year period of the agreement.

Other Intangible Assets

Resource Consents Shell Non- Compete

Agreement

Total

NZ$'000 NZ$'000 NZ$'000 NZ$'000

Gross Carrying Amount

Balance 1 July 2015 23,865 - 6,366 30,231

Additions 6,289 - - 6,289

Disposals (1,192) - - (1,192)

Foreign Currency Exchange Rate Adjustment (247) - - (247)

Balance 30 June 2016 28,715 - 6,366 35,081

Additions 4,365 3,463 - 7,828

Disposals (4,462) - - (4,461)

Foreign Currency Exchange Rate Adjustment 29 - - 29

Balance 30 June 2017 28,647 3,463 6,366 38,476

Accumulated Amortisation and Impairment

Balance 1 July 2015 15,725 - 4,456 20,181

Amortisation Expense 4,195 - 1,273 5,468

Disposals (995) - - (995)


Balance 30 June 2016 18,721 - 5,729 24,450

Amortisation Expense 5,156 217 637 6,010

Disposals (4,493) - - (4,493)


Balance 30 June 2017 19,333 217 6,366 25,916

Net Book Value

As at 30 June 2016 9,994 - 637 10,631

As at 30 June 2017 9,314 3,246 - 12,560

36


24. TRADE AND OTHER PAYABLESTrade and other payables are recognised when the Group becomes obliged to make future payments resulting from the purchase of goods and services. Trade payables are recognised at amortised cost.

2017 2016

NZ$’000 NZ$’000

Current:

Trade Payables 468,551 278,474

Subcontractor Retentions 15,789 14,043

Owing to Associate and Joint Ventures 683 638

Goods and Services Tax 13,669 14,301

Customer Payments in Advance 1,531 1,121

Amounts Due to Customers under Construction Contracts (Note 13) 195,941 184,566

696,164 493,143

Non-current:

Trade Payables 5,724 3,970

Subcontractor Retentions 860 1,296

Total 6,584 5,266

The Group has financial risk management policies in place to ensure that all payables are paid within the credit timeframe offered.

25. BORROWINGSBorrowings are recorded initially at fair value, net of transaction costs. Subsequent to initial recognition, borrowings are measured at amortised cost with any difference between the initial recognised amount and the redemption value being recognised in profit or loss over the period of the borrowing using the effective interest method.

2017 2016

NZ$’000 NZ$’000

Current 2,196 -

Non-current 584,210 473,560

Bank Loans (secured) 586,406 473,560

Current 780 1,188

Non-current 817 1,080

Finance Leases (secured) 1,597 2,268

Current 2,976 1,188

Non-current 585,027 474,640

Total (secured) 588,003 475,828

The Group signed a bilateral Multi-Option Credit Facility, secured by a Cross Guarantee and Negative Pledge Deed, with a consortium of Banks on 2 December 2011. Subsequently, the expiry dates of the borrowing tranches under the Facility have been extended to dates from January 2019 to May 2022. The hedged interest rates are in the range of 2.24% - 4.08% (2016 2.36% - 5.94%).

The Cross Guarantee and Negative Pledge Deed also secures bank guarantees given in respect of contract performance bonds totalling $139.1 million (2016 $132 million).

37


26. OTHER FINANCIAL LIABILITIES

2017 2016

NZ$'000 NZ$'000

At fair value:

Current - Interest Rate Swap Contracts 2,867 4,132

Non-current - Interest Rate Swap Contracts 595 3,895

3,462 8,027

Refer to Note 1(d) Financial Assets and Liabilities for accounting policy.

27. PROVISIONSProvisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying value is the present value of those cash flows.

2017 2016

NZ$’000 NZ$’000

Current:

Accident Compensation Corporation (ACC) Partnership Programme 712 925

Remedial, Environmental and Other 8,172 10,719

Restructuring 996 930

9,880 12,574

Non-current:

Accident Compensation Corporation (ACC) Partnership Programme 719 684

Remedial, Environmental and Other 10,116 5,556

10,835 6,240

Total Provisions 20,715 18,814

Remedial and EnvironmentalThe provision for remedial and environmental work is based on detailed risk assessments by site that identified a number of operational improvements necessary to bring operations into compliance with Federal, State and Local Government planning and development approvals.

28. COMMITMENTS

2017 2016

NZ$’000 NZ$’000

Commitments Entered into as at Balance Date for Development Land 160,878 82,069

Commitments Entered into as at Balance Date for General Plant Items 16,692 13,374

38


29. OPERATING LEASE COMMITMENTS Operating lease payments, where the lessors effectively retain substantially all the risks and benefits of ownership of the leased items, are recognised as an expense on a straight-line basis over the lease term.

2017 2016

NZ$’000 NZ$’000

There are Financial Commitments under Non-Cancellable Operating Leases as follows:

Due Within 1 Year 31,756 29,606

Due After 1 Year and Within 5 Years 63,319 64,994

Due After 5 Years 21,355 16,637

116,430 111,237

Operating leases relate to premises, plant and equipment, motor vehicles and office equipment with lease terms of between 2 and 30 years. Operating lease contracts for premises generally have options to extend the leases and contain market review clauses in the event that the Group exercises its option to renew. The Group does not have an option to purchase the leased asset at the expiry of the lease period.

30. CONTINGENT LIABILITIES

2017 2016

NZ$’000 NZ$’000

Contract Bonds 311,448 268,060

Contract bonds represent guarantees given to customers by the Group’s banks or insurer in relation to construction and maintenance contracts entered into by the Group. In the normal course of business, these are subject to potential loss contingencies arising from such matters as guarantees, contractual obligations, litigation and claims by Governmental and private parties.

In the judgement of Directors, no losses in respect of such matters are expected to be material to the Group’s financial position although their occurrence may have a significant effect on periodic results.

Fulton Hogan Limited is a party to a Cross Guarantee and Negative Pledge Deed in relation to borrowings by Group companies (note 25).

31. RELATED PARTY DISCLOSURES

Transactions with Related PartiesCertain Fulton Hogan Directors have relevant interests in a number of companies with which Fulton Hogan has transactions in the normal course of business. A number of Fulton Hogan directors are also non-executive directors of other companies.

Key Management Personnel RemunerationThe compensation of the Directors and executives, being the Key Management Personnel of the Group, is as follows:

2016 2015

NZ$’000 NZ$’000

Salaries, Wages and Related Short-Term Benefits 12,435 8,152

Post-Employment Benefits - Defined Contribution Plans 528 442

Share-Based Payments 1,000 2

13,963 8,596

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32. FINANCIAL INSTRUMENTS

(a) Capital ManagementThe Group’s capital includes share capital, reserves and retained earnings. The Group’s policy is to maintain a strong capital base so as to maintain investor, creditor and customer confidence and to sustain the future development of the business. The impact of the level of capital on shareholders’ return is also recognised and the Group recognises the need to maintain a balance between the higher returns that might be possible with greater gearing and the advantages and security afforded by a sound capital position.

The Group’s policies in respect of capital management and allocation are reviewed regularly by the Board of Directors. There have been no material changes to the Group’s management of capital during the year.

(b) Financial Risk Management ObjectivesThe Group’s activities expose it primarily to interest rate, foreign currency and credit risk. The Group may, in accordance with policies approved by the Board of Directors, enter into a variety of derivative financial instruments to manage its exposure to these risks.

(c) Interest Rate Risk Management The Group is exposed to interest rate risk as it both invests in interest bearing instruments and borrows funds at fixed or floating interest rates. Management monitors the level of interest rates on an ongoing basis and may use interest rate swaps to manage interest rate risk (refer note 32(d)).

At balance date money market deposits and bank loans are subject to interest rate risk as follows:

Current Rate Interest Rate Review Period

Money Market Deposits 1.75% Daily, Term of deposit

Bank Overdrafts 5.60% Daily

Bank Loans 2.24% - 4.08% 30-90 days

(d) Interest Rate Swap ContractsUnder interest rate swap contracts, the Group agrees to exchange the difference between fixed and floating rate interest amounts calculated on agreed notional principal amounts. Such contracts, some of which commence in future reporting years, enable the Group to mitigate the risk of changing interest rates on the fair value of issued floating rate debt and the cash flow exposures on the issued variable rate debt. The notional principal amount for the interest rate swap contracts at balance date was $309.3 million (2016 $385.0 million). Included in this total are swap contracts with a total notional principal amount of $76.2 million (2016 $90.0 million) that commence in future reporting years. The fair value of interest rate swaps at the reporting date is determined by discounting the future cash flows using the applicable yield curves derived from observable market interest rates at reporting date and the credit risk inherent in the contracts. The average contracted fixed interest rate is based on the notional principal amount at 30 June.

The following tables detail the average contracted fixed interest rates, notional principal amounts, fair values and remaining terms of interest rate swap contracts outstanding as at 30 June:

Cash Flow Hedges

Outstanding Receive Floating Pay Fixed Contracts

Average Contracted Fixed Interest Rate Notional Principal Amount Fair Value

2017 2016 2017 2016 2017 2016

% % NZ$'000 NZ$'000 NZ$'000 NZ$'000

Within 1 year 3.61 4.49 96,050 152,214 2,867 4,132

2 to 5 years 2.94 3.37 213,314 232,813 595 3,895

309,364 385,027 3,462 8,027

The interest rate swaps settle on a quarterly basis. The floating rates on the interest rate swaps are the local interbank rates in New Zealand or Australia. The Group will settle the difference between the fixed and floating interest rate on a net basis.

These interest rate swap contracts, exchanging floating rate interest amounts, for fixed rate interest amounts are designated as cash flow hedges in order to reduce the Group’s cash flow exposure resulting from floating interest rates on borrowings. The interest rate swaps and the interest payments on the loans occur simultaneously and the amount deferred in equity is recognised in profit or loss over the period that the floating rate interest payments on debt impact profit or loss.

The Group interest rate swap contracts are classified as level 2 in the fair value hierarchy.

The valuation technique used to value the Group’s financial instruments is discounted cash flow. Future cash flows are estimated based on forward interest rate curves discounted at a rate that reflects the credit risk of various counter parties.

40


32. FINANCIAL INSTRUMENTS (continued)

(e) Credit Risk ManagementCredit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. Financial instruments which potentially subject the Group to credit risk principally consist of cash and cash equivalents and trade and other receivables. The Group has adopted a policy of only dealing with creditworthy counterparties, including placing cash and cash equivalents with high credit quality financial institutions, and obtaining sufficient collateral where appropriate, as a means of mitigating the risk of financial loss from defaults.

There is no significant concentration of credit risk with respect to trade and other receivables.

The carrying amount of financial assets recorded in the Financial Statements represents the Group’s maximum exposure to credit risk.

(f) Foreign Currency Risk ManagementForeign currency risk is the risk that the value of the Group’s assets and liabilities or revenues and expenses will fluctuate due to changes in foreign exchange rates. The Group is exposed to currency risk as a result of normal trading transactions denominated in foreign currencies and subsidiary companies operating in foreign countries. The Group is mainly exposed to the currency of Australia (AUD).

The carrying amounts of the foreign currency denominated monetary assets and liabilities at the reporting date are as follows:

Assets Liabilities

2017 2016 2017 2016

NZ$'000 NZ$'000 NZ$'000 NZ$'000

Australian dollars 438,349 304,912 608,596 422,556

Fiji Dollars 3,114 8,505 14,612 15,531

The Australian subsidiaries’ results are included in these consolidated Financial Statements, converted to New Zealand currency at a conversion rate of $0.9431 (2016 $0.9309) for the Income Statement and $0.9548 (2016 $0.9576) for the Statement of Financial Position. The Fijian subsidiary’s result is included at a conversion rate of $1.5017 (2016 $1.4144) for the Income Statement and $1.3477 (2016 $1.4778) for the Statement of Financial Position. Any exchange differences arising on the consolidation of these Financial Statements is accounted for through the foreign currency translation reserve.

(g) Liquidity Risk ManagementThe Group manages liquidity risk by maintaining adequate reserves and banking facilities and by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. The maturity profile of financial liabilities is disclosed in note 33.

(h) Categories of Financial Instruments

2017 2016

NZ$’000 NZ$’000

Financial Assets:

Amortised Cost 593,071 437,640

Fair Value Through Profit or Loss 8 8

593,079 437,648

Financial Liabilities:

Financial Liabilities at Amortised Cost 1,079,608 774,247

Derivative Instruments in Designated Hedge Accounting Relationships 3,462 8,027

1,083,070 782,274

There are no loans and receivables designated as at fair value through profit or loss.

(i) Sensitivity AnalysisIn managing interest rate and currency risks the Group aims to reduce the impact of short-term fluctuations on the Group’s earnings. Over the longer-term, however, permanent changes in foreign currency and interest rates will have an impact on profit.

At 30 June 2017, it is estimated that a general increase of one percent in interest rates would decrease the Group’s profit for the year and equity by approximately $4.2 million (2016: $3.4 million).

It is estimated that a general increase of one cent in the value of the New Zealand dollar against other foreign currencies would have decreased the Group’s profit for the year by $0.7 million (2016: decreased by $0.4 million) and decreased equity by $0.8million (2016: decreased by $1.8 million).

A decrease in both interest and exchange rates would have the opposite impact on profit and equity to that described above.

41


33. MATURITY PROFILE OF FINANCIAL LIABILITIESThe following tables detail the Group’s remaining contractual maturity for its financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows.

Within Three Months

Four Months to One Year

One to Five Years Total

NZ$'000 NZ$'000 NZ$'000 NZ$'000

GROUP

2017

Trade and Other Payables 485,024 - 6,584 491,608

Borrowings 5,455 16,365 609,364 631,184

Net Settled Interest Rate Swaps 890 1,977 595 3,462

491,369 18,342 616,543 1,126,254

2016

Trade and Other Payables 293,155 - 5,266 298,421

Borrowings 3,983 11,948 507,231 523,162

Net Settled Interest Rate Swaps 1,033 3,099 3,895 8,027

298,171 15,047 516,392 829,610

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34. INCOME STATEMENT FOR COMPANYThe accounting policies for the Company are set out in the notes to the Group Consolidated Financial Statements. The Financial Reporting Act 2013 no longer requires the Company (Parent) information to be disclosed with the Group information. For the purposes of prequalification the Company information has been included in the notes to the Group Consolidated Financial Statements.

Company30 June 30 June

2017 2016NOTE NZ$'000 NZ$'000

2 Revenue 1,395,785 1,371,4873 Other Gains and (Losses) 144 1,665

1,395,929 1,373,152

5 Auditor's Remuneration 274 465Bad Debts in Respect of Loans and Receivables 272 (13)Changes in Inventories (1,683) (5,179)

Direct Expenses 624,252 626,918Directors' Fees 1,015 812Donations 373 178

6 Employee Benefits Expense 402,020 367,706Energy Related Expenses 36,341 33,760

21 Impairment of Non-Current Assets 474 -

Operating Lease Expenses 21,491 17,534Repairs and Maintenance 58,491 55,611

Other Expenses 82,058 72,1311,225,378 1,169,923

EARNINGS BEFORE INTEREST, TAX, DEPRECIATION AND AMORTISATION (EBITDA) 170,551 203,229

21 Depreciation Expense 43,866 41,34223 Amortisation Expense 5,441 4,920

EARNINGS BEFORE INTEREST AND TAX (EBIT) 121,244 156,967

Finance Income 3,919 3,8657 Finance Costs (10,957) (9,768)

PROFIT BEFORE INCOME TAX EXPENSE 114,206 151,064

8 Income Tax Expense 30,538 34,943PROFIT FOR THE YEAR 83,668 116,121

OTHER COMPREHENSIVE INCOMEItems That May Be Reclassified to Profit or Loss:Cash Flow Hedges(Loss)/Gain on Cash Flow Hedges 1,695 (513)Income Tax Relating to Cash Flow Hedges (475) 144

1,220 (369)

TOTAL COMPREHENSIVE INCOME FOR THE YEAR 84,888 115,752

43

35. BALANCE SHEET FOR COMPANYThe accounting policies for the Company are set out in the notes to the Group Consolidated Financial Statements. The Financial Reporting Act 2013 no longer requires the Company (Parent) information to be disclosed with the Group information. For the purposes of prequalification the Company information has been included in the notes to the Group Consolidated Financial Statements.

Company30 June 30 June

2017 2016NOTE NZ$'000 NZ$'000

EQUITY9 Share Capital 125,887 125,253

10 Reserves (42,092) (43,313)11 Retained Earnings 431,425 437,088

TOTAL EQUITY 515,220 519,028

Represented By:

CURRENT ASSETSCash and Bank Balances 44,130 25,554

12 Trade and Other Receivables 227,274 177,33114 Inventories 32,081 29,916


Other Financial Assets 57 -TOTAL CURRENT ASSETS 312,937 239,747

NON-CURRENT ASSETS

4 Investments Accounted for using the Equity Method 16,297 16,29716 Other Financial Assets 367,900 317,00021 Property, Plant and Equipment 417,718 387,858

Forest Assets 4,891 4,82722 Goodwill 6,465 5,30323 Other Intangible Assets 11,841 9,813

Prepayments and Other Assets 1,709 2,065 TOTAL NON-CURRENT ASSETS 826,821 743,163

TOTAL ASSETS 1,139,758 982,910

CURRENT LIABILITIES24 Trade and Other Payables 215,835 179,4386 Employee Entitlements 47,783 35,648

25 Borrowings 22 -8 Current Tax Payable 4,760 1,717

26 Other Financial Liabilities 1,463 1,54827 Provisions 3,577 2,459

TOTAL CURRENT LIABILITIES 273,440 220,810

NON-CURRENT LIABILITIES24 Trade and Other Payables 4,462 3,2986 Employee Entitlements 2,801 2,709

25 Borrowings 323,667 222,8498 Deferred Tax Liabilities 12,982 10,001

26 Other Financial Liabilities 541 2,15227 Provisions 6,645 2,063

TOTAL NON-CURRENT LIABILITIES 351,098 243,072 TOTAL LIABILITIES 624,538 463,882

NET ASSETS 515,220 519,028


44


36. ADOPTION OF NEW AND REVISED STANDARDS AND INTREPRETATIONS

(a) Standards and Interpretations Effective in the Current PeriodThe adoption of Standards, Interpretations and Amendments to Standards that became effective in the current year has not led to any changes in the Group’s accounting policies with measurement or recognition impact on the years presented in these Consolidated Financial Statements.

(b) Standards and Interpretations in Issue not yet EffectiveThe Group has reviewed all Standards, Interpretations and Amendments to existing Standards in issue not yet effective and, with the exception of NZ IFRS 9 Financial Instruments which is effective for the financial year ending 30 June 2019, NZ IFRS 15 Revenue from Contracts with Customers which is effective for the year ending 30 June 2019 and NZ IFRS 16 Leases which is effective for the year ending 30 June 2020.

NZ IFRS 9 Financial Instruments establishes the principles for hedge accounting and impairment of financial assets. The Group has not yet determined the potential impact of this Standard, however it is unlikely to have a material change to the Group.

NZ IFRS 15 Revenue from Contracts with Customers provides a single, comprehensive principles-based five-step model to be applied to all contracts with customers. The five steps in the model are: identify the contract with the customer; identify the performance obligations in the contract; determine the transaction price; allocate the transaction price to the performance obligations in the contract; and, recognise revenue when (or as) the entity satisfies a performance obligation. The Group’s current position is to restate comparative information for 1 July 2017 and for the financial year ending 30 June 2018. The Group is in its early stages and assessment and the potential impact of this Standard has not yet fully been determined.

NZ IFRS 16 Leases eliminates the distinction between operating and finance leases for lessees and will result in lessees bringing most leases onto their statements of financial position. The accounting for lessors will largely remain unchanged. The Group is likely to early adopt the Standard to ensure all three Standards are adopted at the same time to minimise the impact to the readers of changing comparative information. The Group is likely to change the Comparative information. The likely impact of the Standard can been seen in Note: 29 Operating Lease Commitments. The values recorded in Note 29 are not discounted and includes leases with low value assets (less $5,000) and Leases with terms less than 12 months. The Impact on depreciation/interest is likely to be materially in line with the current operating leases expenditure as per the disclosure on the Income Statement.

37. EVENTS OCCURRING AFTER BALANCE DATE On 29 August 2017 the Board declared a final dividend for the financial year ended 30 June 2017 (refer to Note 11).

There are no other significant post balance date events (2016 - Nil).

45

Auditor’s report

OpinionWe have audited the consolidated financial statements of Fulton Hogan Limited and its subsidiaries (the ‘Group’), which comprise the consolidated statement of financial position as at 30 June 2017, and the consolidated income statement, statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements, on pages 9 to 45, present fairly, in all material respects, the consolidated financial position of the Group as at 30 June 2017, and its consolidated financial performance and cash flows for the year then ended in accordance with New Zealand Equivalents to International Financial Reporting Standards (‘NZ IFRS’) and International Financial Reporting Standards (‘IFRS’).

Basis for opinionWe conducted our audit in accordance with International Standards on Auditing (‘ISAs’) and International Standards on Auditing (New Zealand) (‘ISAs (NZ)’). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

We are independent of the Group in accordance with Professional and Ethical Standard 1 (Revised) Code of Ethics for Assurance Practitioners issued by the New Zealand Auditing and Assurance Standards Board and the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants, and we have fulfilled our other ethical responsibilities in accordance with these requirements.

Other than in our capacity as auditor, auditor of the share register, the provision of IT consultancy

services and the provision of taxation services, we have no relationship with or interests in the Company or any of its subsidiaries. These services have not impaired our independence as auditor of the Company and Group.

Other informationThe directors are responsible on behalf of the Group for the other information. The other information comprises the information in the Annual Report that accompanies the consolidated financial statements and the audit report.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

Our responsibility is to read the other information and consider whether it is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If so, we are required to report that fact. We have nothing to report in this regard.

Directors’ responsibilities for the consolidated financial statementsThe directors are responsible on behalf of the Group for the preparation and fair presentation of the consolidated financial statements in accordance with NZ IFRS and IFRS, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the directors are responsible on behalf of the Group for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs and ISAs (NZ) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

A further description of our responsibilities for the audit of the consolidated financial statements is located on the External Reporting Board’s website at:

https://www.xrb.govt.nz/standards-for-assurance-practitioners/auditors-responsibilities/audit-report-5

This description forms part of our auditor’s report.

Restriction on useThis report is made solely to the Company’s shareholders, as a body. Our audit has been undertaken so that we might state to the Company’s shareholders those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company’s shareholders as a body, for our audit work, for this report, or for the opinions we have formed.

Michael Wilkes, Partnerfor Deloitte LimitedChristchurch, New Zealand 29 August 2017

INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF FULTON HOGAN LIMITED

46

DirectoryChairman M J Holloway DipCE MIE(Aust) FAICD Resigned 31 December 2016

D J Faulkner BE(Civil) BSc CFInsD Appointed 6 October 2016Managing Director N D Miller NZCE(Civil) BE(Hons) FIPENZ GAICD

P J Brecht BE(Civil) FAICDR H Farrant BCom CA Dip Fin & MgtR J Fulton BE(Civil)G B Horton BCom LLB(Hons)W H Johnstone BE(Civil)R W Olliver BCom LLB Appointed 1 February 2017S J Smith BCom CA DipBus(Finance), CFInsDJ R H Fulton BE(Civil) MIPENZ IPE (Alternate for R J Fulton)R L Johnstone DipAg DipFarmMgt (Alternate for W H Johnstone

resigned 1 February 2017 )H H Johnstone BCom LLB (Alternate for W H Johnstone

appointed 1 February 2017)Secretary G M Tapp BCom(Hons) CA ACIS Appointed January 2017Other Subsidiary Company Directors

G R Causer CEO Land Development MSc BScDirector of Land Development Subsidiary

M R Ford Chief Financial Officer, NZ Contracting BCom CADirector of Offshore Subsidiaries

P Heuss Finance Manager BCom CA ACISDirector of Offshore Subsidiary

R A Jones Chief Executive Officer New Zealand Contracting BSc FIE(Aust) FCIOB FAIBDirector of Offshore Subsidiary

P N Kessler Chief Executive Officer Construction FIE(Aust) CPEngDirector of Offshore Subsidiary

N M Marinelli Chief Executive Officer Industries BBUS(Acct) GAICDDirector of Offshore Subsidiary

T J Ford General Manager Regional Businesses New Zealand NZCE(Civil)Director of New Zealand Subsidiary

G M Tapp Company Secretary BCom(Hons) CA ACISDirector of Land Development and New Zealand Subsidiaries

R J Woodgate Group Chief Financial OfficerDirector of Investment Subsidiaries

BA(Hons) ACMA MinstD

Auditor Deloitte Limited ChristchurchBankers ANZ National Bank Ltd

Bank of New ZealandThe Bank of Tokyo-Mitsubishi UFJ LtdWestpac New Zealand Ltd

Solicitors Lowndes Associates, AucklandHarmos Horton Lusk, AucklandCornwall Stodart Lawyers Pty Ltd, Melbourne

Registered Office & Address for Service 15 Sir William Pickering Drive, Christchurch 8053Fax +64 3 357 1450, PO Box 39185, HarewoodChristchurch 8545, New Zealand

Corporate Office 15 Sir William Pickering Drive, Christchurch 8053Telephone +64 3 357 1400, Fax +64 3 357 1450PO Box 39185, Harewood, Christchurch 8545, New Zealand

Email Address [email protected] www.fultonhogan.com

Fulton Hogan Limited

47

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